Oil prices rose sharply in early Asian trade on Monday after Saudi Arabia pledged deep production cuts in July, while the Organization of Petroleum Exporting Countries and Allies agreed to extend supply cuts into 2024.  In a weekend OPEC+ meeting, Saudi Arabia said it will cut production by about 1 million barrels per day (bpd) in July to 9 million bpd. This is in addition to the at least 3.66 million bpd of cuts that the OPEC+ has rolled out since October 2022, which were extended till end-2024 from end-2023 during Sunday’s meeting. The group also agreed to reduce overall production targets, starting from January 2024, by 1.4 million bpd. But a bulk of these reductions will bring production targets for Russia, Nigeria and Angola in line with real current production levels.  The move comes as the oil cartel seeks to increase crude prices and maintain the value of its main export. Saudi Arabia is also seeking to dissuade speculators from betting against crude prices, which have seen a substantial increase in short interest this year. Brent oil futures rose 1.7% to $77.66 a barrel, while West Texas Intermediate crude futures rose 2% to $73.17 a barrel. Both contracts were still trading down between 6% and 8% for the year. The OPEC+ cuts come as fears of slowing economic growth and weak demand battered oil prices this year, with crude marking five straight months of losses. A surprise production cut from the cartel in April provided a limited boost to crude prices, as markets fretted over a potential U.S. debt default and as weak economic readings from China cast doubts over a recovery in demand this year.  Sunday’s cuts now herald tighter oil markets in the second half of 2023, and could keep prices relatively supported, even as economic conditions deteriorate and interest rates rise.

Gold prices edged lower on Monday as the dollar firmed on strong U.S. payrolls report, offsetting support from the prospects that the Federal Reserve would pause its rate hikes this month. Spot gold was down 0.1% at $1,945.66 per ounce. U.S. gold futures fell 0.3% to $1,963.10.  The dollar index rose 0.2%, making greenback-priced bullion less affordable for overseas buyers. Gold prices slipped more than 1% on Friday after data showed U.S. nonfarm payrolls rose by 339,000 jobs last month, much higher than an increase of 190,000 forecast by economists polled by Reuters. But the unemployment rate surged to a seven-month high of 3.7%. The higher unemployment reading prompted markets to price in a 78.7% chance of the U.S. Fed leaving interest rates unchanged at the June 13-14 meeting, according to the CME FedWatch Tool. Non-interest-bearing bullion tends to become less attractive in a high interest rate environment. Asian shares on Monday extended a global rally on optimism that the Fed would pause its rate hikes this month, while oil jumped as Saudi Arabia plegded big output cuts in July. Physical gold demand slowed in India last week as a recovery in domestic prices prompted buyers to postpone purchases, while weakening of the Chinese currency underpinned premiums in the top consumer.

The dollar firmed against major peers in Asian trading after a robust U.S. jobs report spurred traders to price in higher interest rates for longer. The Australian dollar erased early losses after a report showed a pick-up in services activity in key trading partner China. The yuan also got a boost. The Canadian dollar proved resilient, buoyed by a spike in crude oil prices. The U.S. dollar garnered support from higher Treasury yields after data on Friday showed payrolls in the public and private sector increased by 339,000 in May, far outstripping the 190,000 forecast on average by economists polled by Reuters. The U.S. currency gained 0.11% to 140.135 yen, as 10-year U.S. Treasury yields climbed more than 3 basis points to 3.727% in Tokyo. The dollar rallied 0.84% against the yen on Friday. The euro slipped 0.04% to $1.0702, extending the previous session’s 0.51% slide. While headline U.S. jobs growth was much stronger than expected in May, wage pressures eased and the unemployment rate climbed off a 53-year low, potentially giving the Federal Reserve scope to pause their rate hiking campaign at the upcoming June 13-14 meeting, as some officials had voiced a preference for doing last week. However, those bets simply shifted to July, and traders eased off on bets for rate cuts later in the year. CME Group’s FedWatch tool shows interest rate traders are laying 1-in-4 odds for a hike next week, down from 2-in-3 odds a week earlier. For July, markets put 70% odds for rates to be at least a quarter point above where they are currently. Wakabayashi expects the dollar to push up to 142.50 yen, and a clear break of that would open the way to 145. 

The prices of base metals lost their shine over the past year as supplies recovered after earlier disruptions and rising input costs and increased availability of raw materials also played their part. The supply of global base metals will remain tight in calendar year 2023, industry experts opine, due to supply issues and low inventory position. In the past one year, the prices of most base metals – including aluminium, copper, nickel, iron ore and hot rolled coil (HRC) steel – were trading lower by up to 40.3% on the London Metal Exchange (LME), Commodity & Energy Exchange (CMX) and Multi Commodity Exchange of India (MCX). According to ICRA, global prices of base metals contracted by a steep 18-28% in FY23, compared with the record highs in March 2022, amid considerable volatility. Although the fiscal commenced on a healthy note, the metal prices witnessed significant headwinds in Q2 and Q3 of FY23 given an uncertain global economic outlook and demand slowdown in China. With China reopening, some positive sentiments built up in January this year, when metal prices touched almost their six-month high. However, the rally was short-lived as metal prices plummeted again in February and March 2023, owing to uncertainty over the strength of China’s recovery and continued weak global sentiments, it added. In the year-ago quarter, aluminium prices rallied after the start of the Russia-Ukraine war and averaged at about $3,275 a tonne on LME. However, it began dipping in FY23, and by the fourth quarter of FY23, aluminium prices were down 27% at $2,395 from the previous year. According to Jayanta Roy, senior vice-president and group head, corporate sector ratings at ICRA: “While Chinese apparent consumption slightly improved in Q4 CY2022, the global demand outlook of base metals remains uncertain, and would hinge on the housing sector recovery in China and improvement in global sentiments.” Globally, the base metals supply is expected to remain tight in calendar year 2023, owing to persistent supply issues, resulting in a low inventory position. In CY2022, there was an aluminium production cut in China’s Yunnan province, owing to power related issues, while copper supply was also hit owing to geopolitical issues in Peru.

India’s finished steel purchases from China touched a five-year high in April, and the country’s overall imports of the alloy reached a four-year high, according to provisional government data reviewed by Reuters. In April, China emerged as the second-biggest steel exporter to India by shipping out 0.1 million tonnes, up 79 per cent year-on-year. Imports from China accounted for nearly a quarter of India’s overall finished steel imports in April. India imported 0.5 million tonnes of finished steel in April — the highest since 2019 — up 38.2 per cent from a year earlier, the data showed. China, the world’s largest steel producer, exported mostly cold-rolled sheets — used in the automobile, white goods and consumer durable sectors. India also imported electrical sheets and pipes from China, the data showed. In April, South Korea was the top exporter of finished steel by shipping out 0.2 million tonnes and accounting for 32 per cent of India’s overall imports. However, India, the world’s second-biggest crude steel producer, was a net exporter of finished steel in April, with 0.9 million tonnes sold to top buyers such as Italy, Spain, Vietnam, Nepal and the UAE.