LME metals steady after breaking key technical levels

London Metal Exchange base metal prices drifted off session highs during Wednesday January 11 trading but the majority remained close to multi-week highs, having broken through key technical levels.

Yesterday, metals spiked higher following positive Chinese PPI data, which increased expectations of inflation.

“As Chinese and international investors change behaviour and act to buy assets in the coming months to protect against inflation expectations, we may look back to the days when Trump took office and realise we were at the dawn of a new commodity cycle,” Band Financial’s John Browning said.

The market will now focus on US president-elect Donald Trump’s press conference later today.

Adding to support was the LME commitment of trade report (COTR) for the week ending January 6, which showed that while money manager activity has been quiet, gross short positions, in general, remained low.

“Speculative financial investors on the LME began the new year in a highly optimistic mood and have left their net long positions – most of which are at a relatively high level – largely unchanged,” Commerzbank noted.

Aluminium hindered by selling pressure, spread tightness eases

  • Aluminium COTR data, however, bucked the trend and while long liquidation continues, shorts have increased their positions, leading to selling from both camps.
  • “So it has not been investor buying that has lifted prices at the start of the year – it suggests consumers have been pricing material,” Metal Bulletin Research’s William Adams said.
  • The three-month aluminium price was unchanged at $1,749 per tonne. Spread tightness in the nearby dates eased – the sensitive ‘Tom’/Next spread was last at a contango of $0.50, yesterday it had spiked above $8.

Copper drifts but supply issues support

  • The three-month copper price recently traded at $5,750 per tonne, down $8 on the previous day’s close – earlier it had traded at $5,788, the highest since December 13.
  • There are also concerns surrounding mine supply as the threat of strikes at Chile’s Escondida, the world’s largest open pit copper mine, remains. Workers are demanding a 7% pay rise and have until January 23 to negotiate an agreement – workers have already rejected a wage offer from owner BHP Billiton.
  • Additionally, a proposed ban on the export of copper concentrates from Indonesia is due to come into force on January 12, with the government expected to issue new export rules later this week.

Lead and zinc hold at multi week highs

  • Lead and zinc have put in strong performances this week, and further increases were noted today.
  • The three-month lead price recently traded at $2,207 per tonne, up $18 – earlier today it peaked at $2,224.50, the highest since December 19. Stocks were down 75 tonnes at 193,225 tonnes.
  • Zinc prices were at $2,733 per tonne, $13 higher, while stocks fell 1,275 tonnes to 425,150 tonnes. The galvanizing metal faces headwinds from selling due to index reweighting. China’s Yunnan Chihong announced it will cut some lead and zinc smelting output in January due to the low treatment charges for concentrate.
  • Meanwhile, a further seven Chinese zinc smelters are likely cut around 30,000 tonnes of zinc in January, a Shanghai-based senior zinc analyst said.

Tin backwardation eases significantly; nickel cancellations up

  • The three-month tin price rose $20 to $21,170 per tonne. In spreads, the benchmark cash/three-month has seen a significant easing in tightness. It recently traded at a backwardation of $25 – last week it had been above $100.
  • “We are a little surprised that the backwardation has narrowed so much and we do not think it will come in further unless there is a major delivery of tin into LME [warehouses],” a European trader said.
  • Stocks were unchanged at 3,815 tonnes, but availability was down as 70 tonnes were cancelled.
  • The three-month nickel price recently traded at $10,540 per tonne, down $75.
  • Nickel stocks were down 36 tonnes at 371,928 tonnes, while cancelled warrants were up 4,074 tonnes to 134,160 tonnes due to freshly cancelled material in both Kaohsiung and Gwangyang.
  • On-warrant material is at the lowest level since October at 237,768 tonnes. The ‘Tom’/next spread was last at a contango of $1.20, having been at a backwardation of $4 on Monday.

Currency moves and data releases

  • The US dollar index stood at 102.28, down 0.2% against last session’s close.
  • US crude oil inventories will also be released later today.
  • The central bank of China recently set the yuan middle rate against the US dollar at 6.9235, slightly lower than 6.9234 on Tuesday.

 

(Editing by Wei Jun Lau)