MORNING VIEW: Base metals squeezed higher with copper’s C/3m spread rising above $1,100/t

Base metals prices continued to soar higher this morning, Tuesday October 19, with cash prices rising at an even faster pace while shorts are squeezed. Cash copper prices on the London Metal Exchange were evaluated on Monday evening at $1,103.50 per tonne.

  • All of the LME base metals’ cash/three-month spreads, except that for aluminium, are in backwardation.
  • Risk appetite is fairly upbeat despite generally poor economic data, the disrupted supply chain and high energy prices.
  • Most Asia-Pacific equities were in positive territory this morning.

Base metals
LME three-month base metals prices were up across the board this morning with gains averaging 1.2%, led by a 1.6% gain in tin to $38,500 per tonne. Zinc and copper were both up by 1.4%, with the latter at $10,345 per tonne.

The most-active base metals contracts on the Shanghai Futures Exchange were for the most part stronger, the exception was November zinc that was down by 0.9%, while the rest were up by an average of 1% - though this was skewed by a 2.5% rise in November tin. November copper was little changed at 75,650 yuan ($11,759) per tonne.

Precious metals
The precious metals were up by an average of 1.8% this morning, with spot gold up by 0.8% at $1,777.15 per oz this morning. The more industrial precious metals were up by an average of 2.2%.

Wider markets
The yield on US 10-year treasuries has dipped; it was recently at 1.58%, down from 1.61% at a similar time on Monday.

Asia-Pacific equities were mainly firmer on Tuesday morning: the Nikkei (+0.65%), the Hang Seng (+1.38%), CSI 300 (+0.98%), the Kospi (+0.74%) and the ASX 200 (-0.08%).

Currencies
The US Dollar Index has slipped after risk appetite has improved and was recently at 93.65, down from 94.06 at a similar time on Monday.

With the dollar weaker, the other major currencies were firmer: sterling (1.3777), the euro (1.1643), the Australian dollar (0.7465) and the Japanese yen (114.00).

Key data
Economic data out on Tuesday includes US building permits, housing starts and the Federal budget balance.

There is a barrage of central bank speakers today including Bank of England’s governor Andrew Bailey, UK Monetary Policy Committee member Catherine Mann and US Federal Open Market Committee members Mary Daly, Michelle Bowman, Raphael Bostic and Christopher Waller.

Tuesday’s key themes and views
More of the base metals prices have turned vertical and the tightness in the spreads highlights panic short-covering. The trigger seems to have been the high energy costs that are threatening production levels, combined with the power rationing in China that has also affected production. But, because these issues will also be affecting manufacturing, there is also likely to be a demand hit – in turn that will no doubt affect the broader market and could lead to some follow-through weakness in the metals, but for now equity markets are still buoyant.

Given rising commodity prices, especially oil, inflationary pressures and stressed metals markets, gold may well pick up again while investors worry where this is heading.

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