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Commodities: Citi says that oil prices, China are risks in 2018

04-12-2017 15:39

Commodities were lower almost across-the-board following news that US Senate Republicans had clinched passage of their tax cut package in that chamber at the weekend.
Though the definitive tax bill that would be put on the President's desk remained to be thrashed out between Senate and House Republicans, traders were in a sufficiently optimistic mood to push the US dollar spot index 0.36% higher to 93.22 as of 20:40 GMT.

In turn, that saw the Bloomberg commodity index slide 0.85% to 85.75, led by weakness in energy.

Some traders linked losses in that segment of the market to the release of the latest data from Baker Hughes showing the US rig count rose by two during the week ending on 1 December to 749.

Against that backdrop, front month West Texas Intermediate lost 1.63% to $57.41 a barrel on NYMEX alongside drop sof 2.66% to $1.6952 a gallon and 2.25% to $1.8976 a gallon for similarly-dated gasoline and heating oil contracts respectively.

As an aside, some market commentary highlighted a research note from Citi cautioning of an impending slowdown in China and the possible impact that might have on the outlook for a third year of outperformance by commodities.

"Citi expects sustained high commodity demand growth into 2019, given robust 3.4% global GDP increases. But huge uncertainties persist, especially in Chinese policy and China's economy. The world's biggest commodity bellwether looks set to slow, while elsewhere investment-led growth should continue to pick up with rising capacity utilization, benign financial conditions, an absence of negative catalysts and some structural reforms."

The same analysts also expressed a "bullish" view on sugar for the year ahead, as well as for zinc and iron ore at the beginning of 2018, although in their view oil might reverse course through 2018.

Precious metals were also weaker on Monday, but less so, with the COMEX gold contract for February delivery off by just 0.28% to $1,278.70/oz..

Spot iron ore prices at Tianjin gained from their previous closing level of $68.2 a tonne to $70.5 a tonne, while Chinese steel rebar futures rose from $742.4 a tonne to $755.4, amid projections for higher steel output in 2018.

In the agricultural space, futures were awash in red, although here too losses were less steep than in energy.

March CBoT corn was down 1.46% at $3.5350 a bushel and ICE-traded cocoa 1.86% lower to $2,003.00 a metric tonne.