China Easing Supports Cyclical Commodities

China Easing Supports Cyclical Commodities. ETFS Physical Platinum (PHPT) sees US$6mn of inflows on price declines.

ETFS Nickel (NICK) receives US$5.7mn of inflows as recent price drop is seen as entry opportunity by some investors.

Both long and short natural gas ETPs see inflows as price jumps on lower than expected inventory build-up.

Lowest wheat price since February drives US$5.9mn of inflows into long wheat ETPs.

 The end of the 21-week long South African strikes dominated the news last week, with both platinum and palladium suffering a correction as the risk premium was removed. Meanwhile, investors took advantage of recent price corrections in a number of commodities to accumulate, with platinum, nickel and wheat ETPs seeing inflows. With the most recent data from China rebounding and the authorities adding more stimulus through reserve requirement cuts and further fiscal easing, we expect cyclical commodities to continue to perform well.

ETFS Physical Platinum (PHPT) sees US$6mn of inflows on price declines. The platinum price dropped sharply on Thursday after Amplats, Implats and Lonmin announced an “in principle” agreement had been reached with the Association of Mineworkers and Construction Union (AMCU), ending the 21-week long strike. According to our calculations, over 1moz of platinum and 500koz of palladium were lost in the strikes and it will be some time before most mines are brought back to working condition. Given that there is no strike premium priced into platinum prices now and a pick-up in global demand, we believe the correction will be short-lived. At the same time, profit taking drove US$6mn out of palladium ETPs as the palladium price reached a 13-year high at US$864oz last week.

ETFS Nickel (NICK) receives US$5.7mn of inflows as recent price drop is seen as entry opportunity by some investors. Nickel price slumped 5.6% last week as some Chinese stainless steel mills announced they are now willing to pay less for nickel pig iron, a cheaper alternative to pure nickel. However, nickel is up 30% year to date, prompting Glencore’s CEO to announce that rising nickel prices are making mining Loma Miranda in Dominican Republic increasingly likely. Meanwhile, ETFS Tin (TINM) saw US$8.4mn of outflows, the biggest in over 16 months, on higher-than-expected exports numbers from Indonesia. The latter introduced export restrictions back in July 1, 2013 but since then smuggling has increased forcing Indonesia to temporarily seize a ship in March, delaying shipments out of Indonesia.

Both long and short natural gas ETPs see inflows as price jumps on lower than expected inventory build-up. Natural gas price increased the most since February as the EIA announced stockpiles increased by 107bcf vs 110bcf expected. With the low season for natural gas demand fast approaching, we believe the Henry Hub natural gas price will decline in the coming months. At the same time, ETFS WTI Crude Oil (CRUD) saw US$0.6mn of outflows on profit taking, as price hovered near US$107.

Lowest wheat price since February drives US$5.9mn of inflows into long wheat ETPs. The USDA revised the global wheat crop up by 4.6mn bushels for the incoming season. However, consumption was also revised upwards, meaning that the market is likely to be fairly balanced this year. At the same time, ETFS Corn (CORN) saw US$3.6mn of outflows as abundant supply continues to weigh on price.

Key events to watch this week. This week the focus will likely be on the FOMC meeting on Wednesday as investors will look for clues on the timing of a potential rate hike after the latest positive economic numbers. Bank of England minutes will also be looked at after Carney declared interest rates may be rising sooner than expected

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