Yunnan Aluminium’s Wenshan unit announced yesterday that its 300ktpa smelter is restarting production on Monday following a leakage that caused an accident last Thursday. LME on-warrant stocks have slid to 175kt, and the front-end spreads have tightened into a deeper backwardation since last month. Expectations of reduced supply and inventory drawdowns have remained supportive for zinc, despite the headwinds from a slowing property sector in China. Earlier in October, both Glencore and Trafigura announced cuts across their European smelters. The latest plan on cuts comes with gas and power prices remaining at elevated levels in Europe. The LME 3M contract jumped more than 3.5% on the news touching an intra-day high of US$3,359/t. It has a total capacity of around 100ktpa, though there isn’t an indication of the scale of cuts. The zinc market saw short-covering in London after Glencore said it was planning more cuts at Portovesme in Italy. However, the rally in the US dollar and Treasury yields following news on Fed Chair Powell’s reappointment weighed heavily on gold. Industrial metals were whipsawed by a slate of news referring to the Chinese property market.
The prospect of retaliation from OPEC+ does leave the potential for further volatility in oil markets. A resurgence of Covid-19 in Europe coupled with a potential release may be reason enough for the group to decide against a production hike of 400Mbbls/d when they meet in early December. There is a growing risk that OPEC+ responds to an SPR release by pausing planned supply increases. Covid concerns are growing once again, particularly with stricter restrictions being implemented in parts of Europe, whilst the oil balance is expected to be much more comfortable as early as the first quarter of next year. However, one still needs to question whether there really is a need for this action. Therefore, if the announcement surprises on the upside, we could see some further immediate weakness in the market. The last IEA coordinated release was in 2011 when 60MMbbls were released, with the US making up half of this volume.Īction from the US and other key consumers has been priced in by markets to a certain extent, although given the uncertainty over the size of any release, it certainly isn’t fully priced in. There is little known on the potential size of releases from the other key consumers, although if it was to be prorated relative to consumption levels, it would be a significant addition. Reports suggest that the US share could be in the region of 35MMbbls. The US would likely make up the bulk of any release.
Those potentially joining the US could include China, India, Japan and Korea. Media reports suggest that an announcement of a coordinated release could happen as soon as today (Tuesday). A US announcement of an oil release from the strategic petroleum reserves appears to be imminent.
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