Global Commodities: The final 11%

Natasha Kaneva (0:03)

Hello, and welcome to At Any Rate. I'm your host, Natasha Kaneva, and I'm JP. Morgan, Global Commodities Research.

Oil flows from the Middle East have been at the center of our conversations this week. Total shipments from the region, if we combine crude and refined products, have recovered almost 89 percent of pre-world levels. The return of oil tankers was supposed to bring down the price of crude diesel, gasoline, and jet fuel, but this isn't happening. Brent has been remarkably resilient in trading just below $100 today. Physical prices have remained very strong with spot cargo premiums widening over the past few days. Pressure also persists in product markets, particularly diesel, where discussions continue around the potential US diesel ban and additional inventory releases in Europe. This uncertainty have put pressure on other commodity markets, for example, such as metals and copper in particular, which depends on heavy-duty diesel-powered machinery for mining and transportation.

In metals, gold has also been in focus, showing surprising strengths despite higher real yields. To help unpack the dynamics in the metal markets, I'm pleased to be joined today by Greg Shearer, who heads our Basin Precious Metals Research at JPMorgan. Greg, thank you so much for being here with us today.

Greg Shearer (1:15)

Thanks, Natasha.

Natasha Kaneva (1:17)

Greg, I will start just with a couple of points about the Middle East. The Middle East oil exports orders are flowing again. I'm just taking a look at what is happening this week and combined all those volumes, including the bypass capacity. We believe that regional exports from Middle East are now just 11% below pre-war levels, which is a remarkable recovery, given that this is a region still at war. So over the past five days, the 10-day average for total exports has held at about 20.5 million barrels per day, or 89% of 2025 levels. The recovery is uneven. In the case of the crude flows, they have rebounded to 17.5 million barrels per day, or 98% of pre-war levels. Product exports are very much depressed at about 58%, underscoring that the crude market has largely normalized, even as refined product supplies remain constrained. There's another way to back out the same data. We're actually taking a look at the major importers of crude from the Middle East, and early science already pointing that rising exports are already visible in a country, for example, like India, that has the largest nearby bi-areas, that's located closer to the Middle East region. In September, for example, India's imports from the Middle East, and if we add the unknown origins, rose to about almost 3 million barrels per day, up 1.2 million barrels per day from August. And already exceeding 2025 levels. So, Greg, now focusing on metals.

Taking a look at metals, but with a more focus on copper, the prices have been very, very resilient. Clearly, there are many different factors currently at play, but we're hearing more and more about very record high diesel prices, affecting the cost of production of metals, and copper in particular. There's also the tariffs. There's a very low inventories in China.

Chinese demand is rebounding because we see signs that the country began limited but still stimulus feeding through the economy. So how would you describe what is happening in the markets at the moment?

Greg Shearer (3:38)

Yeah, I think a lot to unpack there. Let's take a launching point as the backdrop of the market. What we've been describing in the copper market is really this LME, the benchmark global LME price being stuck in a tug of war between US prices, COMEX prices and China. Now, what really fuels up on the US side is news about tariff. What really fuels up on the China side is they are yearning here for more copper units. Their concentrate imports year to date amid stumbling mine supply globally which we have still tracking roughly around flat, is down around 3 percent year over year. They have instituted a tax invoicing scheme which has disrupted a significant amount of domestic scrap supply that the smelters need. Smelter economics are under pressure because treatment charges are lower and sulfuric acid prices onshore have rolled over.

What that's necessitating is an increasing pull on refined copper units.

What we see here is essentially a market where China is sitting at only 75 tons, sorry, KT of onshore social inventories heading into October and November and year end, which is one of their second peak seasonal demand periods. Like you said, we do think there's an inflection point higher here for Chinese demand, particularly on the back of grid investment, which has underperformed our expectations here today, but we still think markets will be met. From that perspective, our focus here is really primarily on the China pull into year end and do still think that that has enough firepower here to drive us towards 15K and even potentially overshoot as we look into the balance of this year end. We remain, as a base case, still pretty firmly bullish on copper. I think on the supply side, in particular, why that's so important is because the concentrate market is exceptionally tight. If we start, we're seeing almost 4% of global mine supply that is under strike risk right now. We're in a mediation period.