Macro Headwinds Strengthen Bearish Price Trajectory Across Industrial Metals
Gold Eyed Ahead of Key US Political Events
Further price weakness is being seen across the board in LME Non-Ferrous markets, the most notable mover being Copper, which has fallen to 5 1/2-month lows in recent weeks. Further concerns around weaker Chinese Economic data and further US Interest Rate hikes continue to drag prices lower, which is proving favourable to consumers but poses price risks to producers. Copper crossed the 200 moving average price on the 11th May 2023 and is continuing to trade within a range below that level. It’s important to note that lower energy prices have led to lower input costs for production and recessionary fears are not the only movers in price action.
According to analysts at Credit Suisse, if LME Copper fails to protect the level of 8070 there is a possibility of a more significant decline towards 7945, which is a 61.8% retracement from July 2022, as well as the key 7800 level. LME Copper has recently revisited the potential support zone around 8090, which combines a multi-month trend line, the lower boundary of a steep channel, and projections indicating a decline since January.
The formation of a bullish engulfing candlestick pattern on the daily chart suggests the potential for a rebound toward the upper limit of the channel, which is around 8450. sustained upward movement and indicate the possibility of an extended bounce.
LME Copper Forward Curve (Source, LME website)
Zinc’s downward trajectory persisted, with prices dropping below 2,400 per tonne for the first time since October 2020. The decline can be attributed to sluggish demand and a surge in supply. Data from China, the largest consumer of zinc, revealed subdued demand in the world’s second-largest economy. Recent reports highlighted lower-than-expected retail sales, bank loans, factory gate deflation, declining imports, and reduced property investment.
On the supply side, China witnessed a year-on-year increase of 8.97% in zinc output in April, reaching 540,000 metric tons. Projections from SMM suggest that domestic refined zinc production in May is anticipated to grow by 8.65% year-on-year, totalling 559,800 metric tons. This growth is attributed to the completion of routine maintenance and the resolution of power supply issues in Yunnan.
According to S&P Global forecasts, global refined zinc consumption is expected to witness a modest 1.3% growth in 2023, while global refined zinc output is projected to increase by a mere 1.9%. These figures reflect the subdued growth prospects for the zinc market amid the current demand-supply dynamics.
LME Zinc Forward Curve (Source, LME website)