LIVE FUTURES REPORT 29/07: LME base metals trade lower on weak macro despite outflows

Base metals prices traded on the London Metal Exchange were largely down during the morning session on Monday July 29, despite inventory outflows seen across all of the metals as of 9am on the same day.

Only the LME three-month zinc price gained any ground this morning, trading up by 0.6% from Friday’s kerb at around $2,454 per tonne.

Market sentiment indicates that the complex’s price movement continues to be driven by weak macroeconomic factors, leading to a suppressed appetite for metal.

“[It has been] a very cautious start to the week with thin volumes and prices starting to drift lower again,” Kingdom Futures director and chief executive Malcolm Freeman said in a morning note.

“This may well be a case of reality and nerves setting in with the USA gross domestic product (GDP) falling, the eurozone faltering badly as the German economy all but grinds to a halt and change of government in the UK,” he added.

And though zinc’s upward price movement this morning sets it apart from the rest of the complex, optimism for the galvanizing metal’s three-month price is not forthcoming, because it is considered to be underperforming its peers long term amid a loosening supply picture in the face of weak demand.

“I remain bullish on zinc over the short term, and closing above the 20-day moving average is positive, but zinc is lagging behind the rest,” Fastmarkets research analyst Andy Farida said.

“There is a lot of catching up to do. The long-term outlook is negative due to rising global supply – Chinese smelters have started ramping up output – and zinc treatment charges remain elevated, which should attract greater production of refined zinc,” he added.

Indeed, the International Lead and Zinc Study Group (ILZSG) estimated that global zinc production increased by 1.4% year on year in January-May, while a further 1.24 million tonnes per year of mine capacity is estimated to have come online globally between 2018 and 2019.

LME zinc stocks stand at 73,675 tonnes as of 9am this morning, down by 26.9% from 100,825 tonnes on June 26. This was after 2,025 tonnes of the metal was moved out of LME global warehouses at the same time. No material was freshly canceled.

Other highlights

  • The US dollar index was up by 0.06% at 98.05 which could be exerting a dampening influence on LME-traded base metals prices, and inspiring thin trading volumes so far on Monday.
  • The market will look forward to Conference Board Consumer confidence data from the United States on Tuesday.
  • China’s manufacturing purchasing managers’ index (PMI) is also due for release on Wednesday.