Commodities Daily - October 28, 2021

> Oil slides amid mixed EIA report and with Iran and EU preparing to resume nuclear talks. Brent sank as low as $82.3/bbl this morning but has since rebounded above $83/bbl, with investors today primarily eyeing the first print of US 3Q21 GDP. We expect the data to show weaker Q-o-Q growth and come in below consensus, which would keep Brent under pressure and possibly cause it to retest this morning's low of $82.3/bbl later in the day.> Gold rises as 10y US Treasury yield falls. Gold edged up from $1,790/oz to $1,795/oz yesterday as the US 10y Treasury yield slid from 1.61% to 1.55%. Gold is trading near $1,800/oz as we write. Today, the market awaits US 3Q21 GDP data and an ECB decision. We expect bullion to trade in the $1,775-1,805/oz range.> Tracking coal, metals plunge after China caps coal prices. Base metals slumped yesterday as aluminum remains a proxy for China's power crunch. Chinese authorities imposed a limit on coal prices, with coal quotes extending losses for the seventh trading session in a row.OIL SLIDES AMID MIXED EIA REPORT AND WITH IRAN AND EU PREPARING TO RESUME NUCLEAR TALKS Brent dropped from $86.3/bbl to $84/bbl yesterday, mainly due to an agreement between Iran and the EU to restart negotiations to revive the 2015 nuclear accord before the end of next month, with an exact date to be announced next week. Iranian Deputy Foreign Minister Ali Bagheri Kani, who is leading the country's nuclear negotiations, delivered this news in a tweet after meeting top EU diplomat Enrique Mora in Brussels yesterday, although he didn't say where the talks would take place or who would attend. US State Department spokesman Ned Price said the US would discuss Iran with its European allies on the sidelines of the G20 meeting in Rome this weekend. White House Spokeswoman Jen Psaki reiterated that the US is committed to a "diplomatic path forward." Although the negotiations are unlikely to see a swift breakthrough, the resumption of the nuclear talks and the potential imminent removal of US sanctions on Iranian oil exports are undoubtedly strong negative price factors hanging over the oil market. The 80-90 mln bbl of stored Iranian crude and condensate could be released for sale immediately, as well as 1.2 mln bpd of crude production capacity that we estimate Iran could restore over six to eight months once sanctions have been lifted.Yesterday, investors were also digesting the weekly EIA inventory report, which indicated a strong 4.27 mln bbl build in US crude oil stockpiles. The build was very unevenly spread geographically. A massive build took place on the gulf coast, while inventories fell pretty much everywhere else. Stockpiles in Cushing fell for a fourth straight week. The 3.9 mln bbl draw was the largest since January and brought inventories to their lowest seasonal level since 2014. One possible explanation for the uneven results is that crude is flowing south to meet export commitments. Although gulf refineries have increased runs, they remain below the levels seen before Hurricane Ida hit and the maintenance season started.Meanwhile, gasoline inventories continued to drain amid robust demand and ongoing seasonal refinery maintenance. On the export side, Latin America is importing rising volumes of gasoline to meet demand as economies reopen. Brazil, the region's largest importer of US gasoline after Mexico, has reported a surge in traffic. Jet fuel demand has stagnated, with no sign yet of increased buying ahead of the US reopening borders to vaccinated travelers on November 8. Distillate inventories are now at the lowest level since April due to the ongoing harvest in the Midwest and overseas demand from Latin America. Brent eventually settled yesterday at $84.58/bbl, down $1.82/bbl on the day.Brent sank as low as $82.3/bbl this morning but has since rebounded above $83/bbl, with investors today primarily eyeing the first print of US 3Q21 GDP. We expect the data to show weaker Q-o-Q growth and come in below consensus, which would keep Brent under pressure and possibly cause it to retest this morning's low of $82.3/bbl later in the day. Economic activity in 3Q21 reflected weaker consumer and business spending, constrained by product and material shortages, transportation bottlenecks and uncertainty related to the Delta variant. These factors, coupled with elevated inflation, should have taken a significant bite out of real economic LD RISES AS 10Y US TREASURY YIELD FALLSGold edged up from $1,790/oz to $1,795/oz yesterday as the US 10y Treasury yield slid from 1.61% to 1.55%. EUR/USD ticked up from 1.159 to 1.160, creating tailwinds for bullion. Yesterday's US macro data was mixed. Durable goods orders fell 0.4% in September versus an expected 1.1% decrease. This was a positive sign for the US economy, as it suggests that consumer demand is still strong. Meanwhile, wholesale inventories rose just 1.1% in September, barely topping the consensus of 1% growth. The latter data point provided tailwinds for bullion, as it caused the dollar to weaken. The World Gold Council (WGC) published 3Q21 data on supply and demand in the global gold market yesterday. Global demand for gold fell to 830 tonnes in the quarter, the lowest level since 4Q20 and the second lowest level in more than a decade. The decline was driven by reduced investment interest in general and ETF outflows. During the Asian trading session today, gold was quoted near $1,800/oz. The market awaits US 3Q21 GDP data and an ECB policy decision, which will be followed by a press conference with ECB President Christine Lagarde. The macro calendar also features eurozone consumer confidence for October, US pending home sales for September, the Kansas City Fed's manufacturing activity index for October and US weekly initial jobless claims. The consensus for the US GDP report is 2.6% annualized Q-o-Q growth. Meanwhile, euro weakness could put pressure on gold, as the ECB is unlikely to join the general move toward significant policy tightening among DM central banks. We think the bank is likely to stick to the opinion that the inflationary pressures are temporary, which would imply no rate hikes on the horizon. We also expect it to confirm its intention to expand its regular asset purchase program to compensate for the drop-off in support from the emergency program, which ends in March. We expect bullion to remain range-bound at $1,775-1,805/oz ACKING COAL, METALS PLUNGE AFTER CHINA CAPS COAL PRICESYesterday, base metals closed in the red. The 3m LME contract for copper plunged 2.46% (-$241/tonne from the previous day's close) to $9,548/tonne, aluminum sank 5.05% (-$143/tonne) to $2,686/tonne, nickel lost 3.38% (-$679/tonne) to $19,412/tonne and zinc slid 2.63% (-$90/tonne) to $3,335/tonne.Aluminum remains a proxy for China's energy issues, slumping another 5% from the 13-year high recorded earlier this month. This came following a plunge in coal quotes after China announced it was planning to introduce a limit on domestic coal prices. China's top economic planning body, the National Development and Reform Commission, will set the price for the most popular 5,500-NAR coal at CNY440/tonne ($69/tonne) with an absolute ceiling of CNY528/tonne, according to Bloomberg. This is meant to cover the costs of mining and bringing coal to the surface, as well as for labor and some other items. Although this approach implies an aggressive extraction of excess profits in the sector by the government, output is unlikely to be under threat (without this intervention, output could have fallen) with the authorities having ordered a boost in supply at any cost. The plan, now pending approval by the State Council, is scheduled to last until May 1, 2022. The most active contract on the Zhengzhou Commodity Exchange is trading at $162/tonne as we write, down more than 40% since