LIVE FUTURES REPORT 01/04: LME base metals prices weaken on waning optimism

Three-month base metals prices on the London Metal Exchange were capped during the morning session on Wednesday April 1, with the previous day’s gains wiped out after a brief rally precipitated by positive data from China and month-end book squaring abruptly halted.

“Despite the release of better-than-expected data from China, the LME three-month base metals prices have started the new trading month on a weak note,” Fastmarkets research analyst Andy Farida said.

“Data showed China’s manufacturing sector stabilized in March after the Caixin PMI rose to 50.1, following the record low of 40.3 in February, but we are not entirely convinced the stronger readings in the official surveys on Tuesday and the private survey from Caixin paint an accurate picture of the situation in China,” Farida added.

PMI readings above 50 indicate expansion, while those below that level signal contraction.

It appears that Asian traders have seen fit to start the new trading month by re-shorting their positions for base metals with many analysts keen to see whether or not European traders will follow suit as the trading day starts there.

The LME three-month copper price has shed 3.3% from the previous day’s close to trade around $4,786 per tonne this morning, almost eradicating the 3.8% gain made at Tuesday’s afternoon kerb from Monday’s close.

Analysts continue to blame the red metal’s lackluster performance on ongoing macroeconomic headwinds with participants seemingly ignoring the fundamental impact of a looming supply-side choke from prominent copper-producing region South America’s Covid-19-related shutdown and other virus-related mine closures.

The LME three-month zinc price fared similarly, retreating by 2.7% from Tuesday’s close to trade around $1,853.50 per tonne during the morning session today.

The zinc market has been subject to weak fundamentals, acting as a price cap of late, despite circulating talks of continued production cuts.

Combined LME and Shanghai Futures Exchange zinc stocks totaled 233,131 tonnes on Tuesday, an increase of 194% from 79,254 tonnes at the end of 2019, which has pressured zinc futures.

In notable inventory movements today, 17,500 tonnes of aluminium were put back into LME-approved global sheds as of 9am, leaving LME aluminium inventory at 1,164,200 tonnes – up by around 20% since hitting a year-to-date low of 967,325 tonnes on March 17.

This morning’s inflow has had a marginal dampening effect on aluminium futures with the LME three-month aluminium price trading down by 1.7% at around $1,499 per tonne from the Tuesday’s close.

Other highlights

  • The dollar index was trading up by 0.46% at around 99.54 this morning, which may be helping to dampen the LME three-month base metals prices.
  • Brent crude oil futures were suppressed during the morning session, trading down by 0.66% at $25.10 per barrel. Crude oil inventories data from the United States is expected later today, with inventories forecast to rise by 3.7 million barrels after a 1.6-million-barrel rise in the prior week, which is weighing on oil prices.
  • Other data to be released by the US later today includes the ADP non-farm employment change, expected to show a loss of 150,000 jobs in March, while the Institute for Supply Management manufacturing PMI is expected to contract to 44.9 in March from 50.1 a month earlier.