Big resources stocks have had a mild day, in preparation for major events including the reopening this afternoon of the LME’s nickel market and whether the US Fed confirms expectations of a rate rise after its meeting this week.

Those events will have big implications for base metals and gold stocks, which largely sailed through the day without much noise after big losses yesterday as China’s Covid outbreak killed demand for commodities.

The market reacted relatively positively to China’s January and February steel production numbers, down 10% on the same period last year but up on the multi-year lows seen towards the end of 2021.

Futures prices were up on the Dalian exchange while Singapore April futures were up 5.01% to US$144.55/t.

“While steel mill margins in China have edged lower in March, they still remain healthy enough to incentivise steel production,” Commbank’s Vivek Dhar said.

“That helps explain why China’s daily steel output held up so well in January and February despite worries that steel output restrictions linked to the Lunar New Year holiday period and the Winter Olympic games would weigh heavily on China’s steel output.

“Steel mill margins have held up well due to steel demand hopes. Infrastructure investment jumped 8%/mth in Jan-Feb, in line with expectations that infrastructure projects will grow strongly in 2022.”

Iron ore prices have tumbled in recent days due to fears the Covid outbreak will hit downstream consumer demand in China.

The ASX200 Resources index was up a mild 0.25% with Fortescue (ASX:FMG) up 1.46% and Rio (ASX:RIO) 0.15% higher.

Coal and base metals producer South32 (ASX:S32) was the top miner in the large cap sector, gaining 2.8%, while lithium stock Lake Resources (ASX:LKE) was the clear standout in the mid tier, up more than 11% for the day.



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Analysts adjust nickel expectations after price run

Few if any could have predicted nickel’s run to US$100,000/t last week.

Daily limits will ensure that doesn’t happen anytime soon when the nickel market reopens today, after a short squeeze that ensnared stainless steel giant Tsingshan prompted last week’s madness.

But analysts have upped year end forecasts, even as they expect prices of commodities impacted by Russia’s war with Ukraine to retreat before the end of the year.

Westpac’s Justin Smirk now expects nickel to trade at a healthy US$26,000/t at year’s end, up from US$18,000/t previously.

It follows the bank’s big lift in its year end coal price forecasts from US$225/t to US$375/t for met coal and US$125/t to US$225/t for thermal coal.

“What we do know is that while the surge in crude oil prices has grabbed the headlines, what is not so widely reported is the 53% rise in met coal, 77% rise in thermal coal and the eye-popping almost doubling in nickel prices,” Smirk said.

“While the surge in nickel prices has more to do with market dislocation associated with significant short covering it nevertheless highlights just how profound the shock has been.

“It has also laid bare just how tight many commodity markets were before the shock and how limited the near-term potential gains in supply are.

“As such, while we expect prices to moderate though the year the forecast year end points for many commodities are now meaningfully higher than they were in our last report.”