Nickel led a rally across base metals markets, jumping more than 8 per cent in intraday trade on Monday before settling 3.5 per cent higher at $US29,729 a tonne. This followed a 4 per cent lift on Friday.

“The fact the market can see a way out of China’s lockdown has provided it with a sense of cautious optimism,” said Vivek Dhar, Commonwealth Bank’s mining and energy commodities analyst.

“The reopening of Shanghai, which is a key city in supply chains, will also help ease bottlenecks, and on top of that, there’s stimulus waiting on the back burner which can now hit the real economy.”

Brent crude climbs again

Hopes of a bounce in demand coincided with concerns about supply in oil markets after European Union leaders agreed to partially ban imports of Russian crude following weeks of negotiations.

The 27 countries will end seaborne deliveries of Russian oil in six months’ time. Pipeline imports were not included in the agreement because countries in central and eastern Europe rely heavily on Russian pipeline supplies, a move that was crucial to getting the support of landlocked Hungary.

Brent crude notched up its eighth consecutive daily increase, climbing 1.9 per cent to $US121.67 a barrel, its highest closing price since March 8. The commodity is on track to post a sixth straight monthly advance, which would mark the longest such run in more than a decade.

“This move is supportive for prices,” said Warren Patterson, head of commodities strategy at ING. “However, the market has had a month to digest the potential ban, and so we suspect it is largely priced in already. This is reflected in the price action in early trading in Asia this [Tuesday] morning.”

Shanghai’s COVID-19 lockdown began in late March, but restrictions have been gradually loosened in recent weeks in line with a decline in cases.

Data released on Tuesday showed that China’s factory activity contracted at a slower pace in May as curbs on some plants were eased, adding to hopes the country’s economic downturn was approaching an end.

China’s official manufacturing purchasing managers’ index (PMI) rose to 49.6 for the month, from 47.4 in April, according to the National Bureau of Statistics. Economists had been expecting a print of 49.

The non-manufacturing gauge, which measures activity in the construction and services sector, climbed to 47.8, from 41.9 in April, above consensus forecasts of 45.5.

A reading below 50 points indicates a contraction in activity, while a reading above indicates expansion.

However, strategists have warned that commodity markets remain delicately poised given China’s stubborn pursuit of its zero-COVID goal, raising the risk that lockdowns could be reimposed swiftly if an outbreak flared up.

“China’s reopening strategy is only gradual and still very much susceptible to a new virus outbreak,” said Rodrigo Catril, senior FX strategist at National Australia Bank.

“Omicron is very infectious and until China finds a solution to its vaccine dilemma, the risk of new lockdowns will remain elevated.”