As 2022 draws to a close, futures contracts that are set in January to February are set to expire soon. To complement existing information, this article will gather key macroeconomic indicators in China, the US, and major economies.
Additionally, financial news on commodities and other futures will be covered based on Orient Futures research reports and internationally gathered news sites.
2022/2023 Inflation
China
As economic slowdowns kick into effect, IMF managing director warned that 2023 will remain a tough economic year. It was stated that “For the next couple of months, it would be tough for China, and the impact on Chinese growth would be negative, the impact on the region will be negative, the impact on global growth will be negative”.
These forecasts were driven by indicators such as the relaxing of COVID measures, which allows China to start traveling to the rest of the world. In January 2023, this remains a source of concern as China is experiencing a huge COVID-19 surge and CNA reports that the “University of Hong Kong researchers have estimated nearly 1 million Chinese may die this winter as a result of opening up”.
In totality, China’s decision to ease restrictions is a double-edged sword. On one hand, China faces a risk of increased transmission of the disease. On the other hand, the decision can help to ease global supply chain tensions, but that too can be limited by higher demand for commodities and energy, adding to inflation pressures.
Europe
Setting sights toward Europe, The Bank of England is expected to raise UK interest rates again. With the current base interest rate at 3.5%. Sources estimate a rise in rates to an estimated range of 4.5% to 4.75%. This round of rate hikes is likely to take a break in February.
USA
However, other sources have also indicated equally contradictory views. IMF anticipates that the US economy may avoid the recession as the labour market remains strong, and the unemployed remains at 3.7%, near the lowest since the 1960s.
Commodity Futures
Crude Oil
INE Crude Oil Futures
The SHFE most traded crude oil futures contract, which will expire in February 2023, edged 1.43% higher from the previous week and closed at 548 yuan/barrel. The weekly trading volume of the February contract declined slightly by 7.38% to 725,979 lots with total turnovers of 390.48 billion yuan. Lastly, the open interest of the main contract lowered by 13.81% and was recorded at 34,138 lots by the end of the week.
Driven by the impact of Russia’s threat amid extremely cold weather in the US, concerns about the crude supply increased gradually. Since Russia’s invasion of Ukraine upended the global oil markets, a group of western countries has imposed a $60 per barrel cap on Russian crude to reduce Russia’s income while keeping exports stable on the market.
As a result, Russia is likely to cut oil production by 5-7% (500,000-700,000 barrels/day) in early 2023 in response to Western price caps, which have raised supply shortage concerns. According to statistics, the total crude imports from Russia fell by 1.86 million barrels per day, dropping approximately 54% to 1.6 million barrels in the week ending on December 16.
In terms of the ongoing winter freeze in the US, the cold has halted one-third of refining capacity on the Texas Gulf Coast and as much as 350,000 barrels a day of crude output in North Dakota. Besides, U.S. regulators approved the restart of the Keystone pipeline, but severe cold weather disrupted production, which is expected to ease some of the risks of disruptions to U.S. crude supplies
Orient Futures Weekly Market Wrap (December 19 – December 25)
Copper Futures
In the copper industry, inventory in the global warehouses, COMEX, SHFE and LME decreased, while the inventory in the bonded areas has increased.
It takes time for the inventory to increase as the production of overseas mines begin to scale and domestic smelters begin replenishing inventories. Overall, the production of domestic and overseas refined copper has increased gradually, and the domestic increase is likely to be faster in 23Q1, while overseas recovery will be relatively slow.
Domestically, there is an increase in processing fees and the supply of domestic scrap copper is still tight for the next few months. From the perspective of demand, downstream demand continues to recover slowly, combined with seasonal effects at the end of the year and the limitation caused by the pandemic, demand is likely to be limited.
Lastly, the price difference between refined copper and scrap copper has risen as scrap copper is a substitute for refined copper and demand has increased.
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