LIVE FUTURES REPORT 15/08: LME base metals complex plummets amid heightened risk-off sentiment; zinc, lead fall 6%

The price of base metals on the London Metal Exchange plummeted at the close of trading on Wednesday August 15, largely affected by sharp risk-off sentiment amid volatile currency flows.

Falling furthest, zinc prices have dipped more than 6%, closing at their lowest point since October 2016 and down more than 30% since the start of the year, when prices were at $3,316 per tonne on January 2.

Volumes traded for zinc are nearing the 2018 high of 24,100 lots, registering 21,822 lots by the close.

Today’s collapse in the base metals complex means all base metals, bar aluminium, are now sitting at their lowest levels this year; many have had the sharp gains made in the late 2017 ‘Trump Bump’ wiped out.  

Equally, lead’s three-month price is down 6% and hit a low of $1,919 per tonne, its lowest point since September 2016 and falling 25% in the year to date. 

Elsewhere, copper’s freefall from the $6,000-per-tonne mark has led to the red metal hitting its lowest point since June 2017.

“The dollar is high but technical levels got wiped out, quickly and fast. Every metal is lower than it was at the start of the year. Copper’s bull market is gone and people expected it to last for longer. Look at the volumes across copper and zinc today – they are huge and people are making a profit,” a trader told Metal Bulletin. 

Falling below $13,000 per tonne, the three-month nickel price has reached its lowest level since February this year, while tin prices closed at levels unseen since August 2016, marking the biggest daily drop since August 2015.

Tin’s cash/three-month spread has now moved into a contango of $10 per tonne, the first time the metal has been in contango since April 2017.

“We just think it’s a risk off move. Currencies have been hit and its net dollar outflow from non-US countries cashing in and taking the dollars and putting them back into the US. Copper bounced off a longer-term trend, close to the 200 DMA, so there is some technical fuel to that fire,” a second trader told Metal Bulletin

Yet beyond volatile currencies, broad macroeconomic pressure has begun to mount, with drops in Asian equities forming a key component of the collective dive. 

“For the past six months everybody forgot about what’s happening in China. If you simply look at the Shanghai composite it’s been dropping steadily and has lost about 20-24% since the beginning of the year,” Metal Bulletin analyst Andy Farida said. 

Exacerbating the dips, uncertainty regarding negotiations at BHP’s Escondida mine in Chile have worsened the outlook for copper, yet with prices persistently edging lower, some market participants are indicating that if prices drop too much this could further hinder production.   

“There is a heightened risk-off sentiment coming from emerging markets at the moment. What hasn’t helped, is that in copper, it is looking more and more likely that the union and mine will come to an agreement, and the market is reacting,” Warren Patterson, commodities strategist at ING told Metal Bulletin.

“It’s a case of would you catch a falling knife. There is no incentive for mining at these levels. The fundamental view is that these levels are harder to justify, and so the long-term picture is that things could take a constructive turn,” he added.

Base metals hit record lows

  • The three-month copper price closed at $5,801 per tonne, a $243.50 fall from Tuesday’s close. Stocks climbed a net 2,750 tonnes to 257,625 tonnes. 
  • Aluminium’s three-month price fell $45 to $2,025 per tonne. Inventories fell 4,650 tonnes to 1,131,275 tonnes, with 30,100 tonnes rewarranted in Busan and 5,200 tonnes freshly canceled in Rotterdam.   
  • Nickel’s three-month price ended $575 lower at $12,850 per tonne. Inventories were down 384 tonnes at 248,328 total tonnes, with 60 tonnes rewarranted in Singapore. 
  • The three-month zinc price fell $154 to $2,300 per tonne. Stocks fell 2,925 tonnes to 253,250 tonnes.
  • Lead’s three-month price closed at $1,927 per tonne, down $147 from Tuesday’s closing price. Inventories were up 3,250 tonnes at 125,425 total tonnes. 
  • The three-month tin price fell $615 to $18,405 per tonne, while stock levels were stable at 2,815 total tonnes. 

Currency moves and data releases

  • The dollar index was up 0.08% at 96.73.
  • In other commodities, Brent crude oil was down 1.49% at $70.66 per barrel. 
  • In a busy data day, US retail sales were up 0.5%, productivity was up 2.9% and unit labor costs were down 0.9%. Business inventories ticked up 0.1%, while capacity utilization rates stood at 78.1%.

Alice Mason and Archie Hunter contributed to this report.