Commodities Daily - March 30, 2021

> Oil prices rise on expectations that OPEC+ will extend current output cuts. This morning, Brent is trading around $65/bbl as investors eye eurozone and US consumer confidence for March, North Sea crude loading programs for May, and API data on US oil and refined product inventories (to be released overnight). The focus will remain on this week's OPEC+ meeting. In our view, today Brent could retest yesterday's high of $65.46/bbl as investors are likely to continue pricing in an OPEC+ decision against raising output in May. However, further strong gains look unlikely after the head of the US CDC pointed to cases and deaths picking up. > Gold declines amid rise in US 10y Treasury yield. Gold retreated by $15/oz to $1,710/oz yesterday as the US 10y Treasury yield rose above 1.7%. Bullion is trading near $1,705/oz as we write. Today, the market awaits DM confidence indexes. We think gold is likely to test support at $1,700/oz today, while a return to the $1,720-1,740/oz range is unlikely.> Base metals trading lower following resumption of shipping through Suez Canal, palladium lower in light of water inflow stopped at mines. Yesterday, base metals sold off following reports that shipping through the Suez Canal has been restored. Aluminum declined 1.39% to $2,266/tonne, copper 1.08% to $8,864/tonne and nickel 1.06% to $16,216/tonne. Palladium slumped 5.2% to $2,540/tonne after Nornickel reported that it had stopped the water inflow at the Oktyabrsky and Taimyrsky mines. Steel futures in China have surged to new 10-year highs, given that demand is peaking seasonally..OIL PRICES RISE ON EXPECTATIONS THAT OPEC+ WILL EXTEND CURRENT OUTPUT CUTSAfter trading around $64-65/bbl at the start of the day yesterday, Brent briefly dipped toward the $63/bbl mark ahead of the European session. It bounced back to reach an intraday peak of $65.46/bbl midday, but another correction followed around the start of the US session, this time toward $64/bbl. Brent still eventually settled at $64.98/bbl, fixing $0.41/bbl above the previous settlement. A highlight yesterday was the news that tugs had refloated the giant container ship that had been blocking the Suez Canal for almost a week, and shipping resumed late yesterday. The main focus this week, however, is the OPEC+ meeting this Thursday, with a JMMC meeting to take place on Wednesday. A source familiar with the OPEC+ negotiations told Reuters that Saudi Arabia is prepared to support extending the OPEC+ oil cuts not only into May but through the month and into June, and is also ready to extend its own voluntary cuts to boost oil prices amid a new wave of coronavirus lockdowns, especially in Europe. We note that last week four OPEC+ sources told Reuters the recent lockdowns would most likely encourage the group to extend the production cuts into May. This has led investors to price in an OPEC+/Saudi decision to delay production hikes to July ahead of the actual meeting, which has driven Brent higher.In our view, whatever the motivation behind the Saudi decision in early March to delay a production hike was, the last few weeks have seemed to validate this caution. We believe the Saudis will push for a rollover of the April quotas for May and also likely June. Meanwhile, Riyadh might only fully restore the 1 mln bpd it has voluntarily cut once it is certain that OECD inventories have fallen below the 2015-19 average. At the current pace of OECD stock draws, the overhang will likely have disappeared by May, but this will only show up in the IEA data in July. In our view, Saudi Arabia's preference would be to wait until July before raising output, and Riyadh will only do so after the data shows OECD stocks have normalized.This morning, Brent is trading around $65/bbl as investors eye eurozone and US consumer confidence for March, North Sea crude loading programs for May, and API data on US oil and refined product inventories (to be released overnight). Meanwhile, the focus will remain on this week's OPEC+ meeting. In our view, today Brent could retest yesterday's high of $65.46/bbl as investors are likely to continue pricing in an OPEC+ decision against raising production in May. However, further strong gains look unlikely after the head of the US CDC pointed to cases and deaths picking up. New cases in the US have reached around 60,000 a day in the past week, a rise of around 7%, according to the CDC. While the pace of shots is picking up and is set to hit 3 mln a day, cases are also now rising. Renewed lockdowns amid slow vaccinations have proven the primary headwind for an oil demand recovery in some countries. Overall, however, we think administrative hiccups with vaccinations might delay, but cannot derail, the oil demand recovery, and we remain bullish on summer crude prices and Brent calendar LD DECLINES AMID RISE IN US 10Y TREASURY YIELDGold dropped by $15/oz to $1,710/oz yesterday, its lowest level in more than two weeks, as the 10y US Treasury yield climbed to 1.74%. US President Joe Biden yesterday said that 90% of American adults would be eligible for Covid-19 vaccines by April 19. Demand for high-yield paper is growing despite a rise in new infections and deaths in the US, according to the head of the US Centers for Disease Control and Prevention. Meanwhile, EUR/USD retreated to 1.176. Concerns over the potential fallout from a hedge fund's default on margin calls also elevated the dollar's appeal, reducing demand for gold as an alternative asset. One positive for gold is that the Fed is "a long way from raising interest rates at this point," according to Fed Governor Christopher Waller, reinforcing hopes that the bank is ready to remain dovish as long as virus woes linger.Today, gold is trading near $1,705/oz, with the US 10y yield stuck around 1.74%. Long-dated Treasury yields could make further gains amid expectations that US President Biden's infrastructure initiative (to be unveiled tomorrow) could bolster economic growth. Investors are also awaiting nonfarm payroll data for March on Friday. Today, the main data will be US and eurozone confidence indexes. We think gold is likely to test the $1,700/oz support level, with a break below paving the way to $1,670/oz; a return to the $1,720-1,740/oz range seems unlikely to SE METALS TRADING LOWER FOLLOWING RESUMPTION OF SHIPPING THROUGH SUEZ CANAL, PALLADIUM LOWER IN LIGHT OF WATER INFLOW STOPPED AT MINESYesterday, base metals sold off following reports that shipping through the Suez Canal has been restored. Aluminum declined 1.39% to $2,266/tonne, copper 1.08% to $8,864/tonne and nickel 1.06% to $16,216/tonne. Zinc prices remained at yesterday's closing level of $2,829/tonne. The Suez Canal is most important for aluminum, which travels through the canal on its way from Persian Gulf countries to Europe. Tomorrow will see important macro releases from the US (existing home sales) and China (PMIs), which will impact trading tomorrow. Yesterday, palladium prices slumped 5.2% to $2,540/oz after Nornickel reported that it had stopped the water inflow at the Oktyabrsky and Taimyrsky mines. The company had stopped work at the mines in mid-March after having observed water inflow. Following this, the palladium price climbed 15% above its average level over September 2020-February 2021. Nornickel's management also reported that it would carry out all obligations to its customers, but did not disclose from where it would source the palladium. If the company is forced to buy on the spot market, it could lead to another round of price increases on the metal. We will continue to monitor the situation with Nornickel because any delays with the restoration of mining will have a noticeable effect on the global palladium market. Steel futures in China have surged to new 10-year highs, given that demand is peaking seasonally. Steel rebar is up 5.7% since the beginning of March $737/tonne, hot-rolled steel has climbed 7.5% to $800/tonne. Prices are close to breaking above their highest levels since 2011. According to reports from China, the increase in steel prices is connected with the fact that steel factories are not managing to keep up with demand for steel for construction. Furthermore, construction demand is expected to increase by the beginning of summer. How things shape up in the steel market is important for providers of inputs for steelmaking. As long as steel prices keep rising, there are no grounds to expect iron ore prices to