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Commodities From Oil to Zinc Soar After China Eases Covid Rules

Commodities from oil to iron ore and copper jumped after China eased some Covid restrictions.

A molten mixture of lead and bronze pours from a cauldron into moulds in the foundry at the copper mining and smelting complex, operated by RTB Bor Group, in Bor, Serbia, on Tuesday, Feb. 28, 2017. Mining and Smelting Combine Bor is the only producer of copper and precious metals (gold and silver) in Serbia. Photographer: Oliver Bunic/Bloomberg
A molten mixture of lead and bronze pours from a cauldron into moulds in the foundry at the copper mining and smelting complex, operated by RTB Bor Group, in Bor, Serbia, on Tuesday, Feb. 28, 2017. Mining and Smelting Combine Bor is the only producer of copper and precious metals (gold and silver) in Serbia. Photographer: Oliver Bunic/Bloomberg

Commodities from oil to soybeans to precious metals jumped after China eased some Covid restrictions, raising hopes of a demand recovery in the world’s second-biggest economy. 

Almost all major commodities traded higher following China’s move to reduce the time that travelers and close contacts of infected people must spend in quarantine, a significant amendment to the Covid Zero policy. Oil futures in New York rose 2.8% to settle near $89 a barrel. Copper, precious metals and agricultural commodities from corn to wheat all climbed, as did shares of companies across the sector. Aluminum had its best day since 2009.

China’s loosening of restrictions strengthened a rally that began on Wall Street, with risk assets rising after US inflation slowed. Markets interpreted the data as a sign that the Federal Reserve could slowdown its aggressive interest-rate hike plans. A gauge of the dollar has fallen sharply from its 2022 high in recent days, aiding commodities priced in the currency. 

WATCH: China’s Health Commission says it’s shortening the quarantine period for inbound travelers, and that a system that penalizes airlines for bringing virus cases into the country will also be scrapped.Source: Bloomberg
WATCH: China’s Health Commission says it’s shortening the quarantine period for inbound travelers, and that a system that penalizes airlines for bringing virus cases into the country will also be scrapped.Source: Bloomberg

“Commodities caught a bid today as China revised some of it is COVID travel policies,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Management. “The impact of these changes may not be felt immediately, but any signs that China is preparing to move away from COVID Zero is enough to spark a rally across commodities as China is traditionally the growth engine for commodity demand.”

Base metals traded on the London Metal Exchange jumped with zinc soaring as much as 6.4% and aluminum gaining 5.9%. In the US, Chicago soybean futures had the biggest intraday increase in a month, settling at $14.50 a bushel. 

Shares of companies across the commodities industry surged. Century Aluminum Co. jumped 23%, the most in six years, while top US producer Alcoa Corp. surged as much as 16%. Offshore oil and gas driller Transocean Ltd. added as much as 14% and oil refiner Phillips 66 climbed 5.6% to the highest since January 2020.

Investors have been closely watching for signs that Beijing will loosen its restrictive policies. A gauge of energy and raw material prices has slumped from its 2022 high as demand from China remained stymied because of the virus-related movement controls.

Still, some in the market were less optimistic. Though the relaxation of the rules is a step in the right direction, the jump in oil prices looks like an overreaction given China is likely to pursue its Covid Zero policy, said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore.

Commodities From Oil to Zinc Soar After China Eases Covid Rules

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