Source: SGX, Investing.com

A concise summary of what’s moving markets, the impact on base, precious and ferrous markets, including Theme of the Day.

What’s moving markets?

• The re-emergence of Covid-19 cases in Asia and persistent inflation worries are keeping a lid on equity markets. Yields on 10-year Treasuries held steady while the USD drifted lower ahead of the Fed’s latest meeting minutes, due on Wednesday.
• Markets like to overreact, and it looks like they overreacted to last week’s US inflation number. More than 60% of the increase in inflation from the month before came from exactly the kinds of things you would expect to be transitory: Used cars and trucks, hotels and motels, airfares, motor vehicle insurance, car and truck rental, admissions to live events and museums, and food away from home.
• Chinese factory output grew 9.8% in April from a year ago, in line with forecasts but slower than the 14.1% surge seen in March. A sharp drop in motor vehicle production hurt output. April retail sales rose by 17.7%, weaker than the 25% consensus and the 34% surge seen in March. Fixed asset investment increased nearly 20% in the first four months from the same period a year ago, slowing from January-March’s 25.6% increase. Growth in real estate investment, property sales by floor area and new construction starts by floor area all cooled as well.
• The EU agreed yesterday to not impose steep tariffs on US products (including bourbon whiskey and Harley Davidson motorbikes) that were supposed to kick in on 1 June. Both sides will instead intensify dialogue on overcapacity in the steel industry and other topics of mutual interest as they seek to reach an agreement on removing aluminum and steel tariffs altogether. The move comes ahead of President Biden’s visit to Brussels in early June.
• Gold rose to its highest in more than three months after a US inflation scare last week that increased volatility on stock markets and resurgence of Covid-19 cases in parts of Asia. The rest of the precious metals complex remained in positive territory, but only just.
• LME metals have started the new week on a firmer footing as bullish momentum resumed amid a slew of news stories and some bargain hunting, with lead and zinc leading the way. Copper reacted to news that a union representing workers at BHP’s Escondida and Spence mines rejected by 97% an offer on a future contract, raising the risk of a strike at these sizeable facilities. Chilean law allows either party to request a five-day government mediation period, extendable for an additional five days. Aluminium was supported on further production curbs in China. The metals have not had much of a correction to speak of, will the current correction prove to be both short-lived and shallow?
• Selling is continuing in the Chinese ferrous markets where steel rebar prices declined by nearly 3% for a third straight session. Chinese steel output in April hit a record high, this despite fervent government efforts to rein in output.  The price of iron ore rose back over $200/t, dashing hopes that there might be some relief in the rapid rise of raw materials globally.

Theme of the Day: Vale rejects talk of iron ore supercycle

• Brazilian miner Vale says raw material’s record prices are not a repeat of early 2000s boom, he told the Financial Times. Iron ore is not on the cusp of a new supercycle, according to the CEO of Vale, who expects demand to flatten out after a couple of years of the current tightness. “In the last supercycle we had rapid industrialisation and urbanisation in China. It was a structural change. A shock in demand. We are not talking about a huge shock in demand now. I would say it is marginal. It is not a shock.” But he added that, with big global economies revving up and iron producers running at or near capacity, prices could remain elevated until 2023. “Although there is strong talk about cuts, production is still going up in China and now you have Europe coming back and the US announcing a huge stimulus package. There are also restrictions on supply,” he said. “This market is going to be tight for a while. At least two years.”
• Iron ore has risen more than 150% to a record high above $230/t last week, mainly on the back of strong demand from steel mills in China, before paring gains and hitting $209.35/t on Friday. Iron ore’s turbocharged performance has been a boon for big producers including Vale, which require a price of only about $50/t to break even.
• Following a deadly dam disaster two years ago that killed 270 people, mainly company employees and contractors, Vale was forced to curtail production. Its output fell from a planned 400Mtpy to about 300Mt in 2019 and 2020, and the company lost its position as the world’s largest iron ore producer to Rio Tinto, which has managed to produce about 330Mt in each of the past two years. Vale eventually needed to increase production to 400Mt because iron ore was a “high fixed-cost business”. However, he said the company would do so in a “very paced way”, mindful of safety. The restart of many mines has to go through several complex licensing processes.
• Over the medium term (from 2025 to 2030) Vale expected diminishing demand for iron ore from China because of increasing use of scrap in electric arc furnaces. We see it diminishing demand for iron ore from China.” There would also be a shift to higher-quality iron ore as the steel industry sought to reduce emissions by moving to less polluting methods of steelmaking such as hydrogen-based production.