Metals Update – 12 June

Copper, which is often seen as the global economy barometer, has been relatively stagnant recently. However, prices increased on Friday, showing a potential second consecutive weekly gain.

This rise in prices is fuelled by optimistic expectations of increased demand from China, the leading consumer of copper, as well as lower inventories.

The three-month copper price on the London Metal Exchange (LME) rose by 0.4% to $8,385.5 per metric ton. It reached its highest point since May 11, touching $8,432 and flirting with the 200-day moving average of $8,394. Recent data from the LME reveals a significant decline in copper stocks, with on-warrant stocks dropping by 17,750 tonnes last week—the largest weekly decrease since October 2021.

Additionally, Peru’s latest official figures indicate a 30.5% year-on-year increase (+1.2% month-on-month) in copper output, reaching 222kt in April.

In the realm of ferrous metals, the most active iron ore contract at the Singapore Exchange continued its upward trend and traded above $110 per ton on Friday morning. Speculations regarding China’s implementation of more supportive measures to accelerate economic growth contributed to this rise.

Regarding aluminium, both the LME aluminium cash bid price and LME aluminium official settlement price increased by $20 per ton (0.93%) and $19 per ton (0.90%), respectively, to reach $2,192 per ton and $2,190.50 per ton on Thursday. Market participants closely monitored the rain forecast in Yunnan, China’s primary aluminium-producing region, where reduced hydropower generation has kept a portion of the metal production capacity offline for several months.

The Automotive MMI (Monthly Metals Index) broke its sideways trend in the past month, declining by 3.40%. While all components of the index experienced decreases, hot-dipped galvanized steel recorded a significant price drop, along with other steel types. This may indicate a potential trend reversal. However, for this reversal to materialize, consumer purchasing needs to increase, which is currently impeded by elevated new car prices.

Last week, tin prices rose by 2.4% to $26,440. Zinc prices decreased by 0.5% to $2,390.4, lead prices increased by 0.9% to $2,060.5, and nickel prices saw a 2.3% rise to $21,620.

This Week 

In recent weeks, copper has been following a bearish trend since reaching its peak on January 18th. This bearish sentiment is reinforced by the bearish crossover pattern formed by the 25-day and 50-day moving averages. Additionally, copper has exhibited a potential bearish crossover pattern, while the oscillator remains below the neutral point. As a result, there is a likelihood that copper will experience a bearish breakout, with sellers aiming for the next significant support level at $3.2450, which is approximately 14% below the current price. However, if copper manages to surpass the key resistance level, it would invalidate the bearish view.

Over the weekend, hydropower generation in Yunnan showed signs of improvement, suggesting that a small portion of aluminium production capacity in the region may resume operations in the upcoming week until late June, according to Shanghai Metals Market.

Hopes for a near peak in Federal Reserve rates were raised due to a surge in US weekly jobless claims last week. As a result, the dollar remained close to a two-week low, bolstering the demand for dollar-priced commodities among holders of other currencies. This is set to continue this coming week.

Foenix Partners, 26 Curtain Road, London, EC2A 3NY