Metals Update – 26 June

The week before

The Copper Monthly Metals Index (MMI) experienced a 4.3% decline from May to June, displaying short-term volatility in the average copper price.

At the beginning of the week, copper prices slightly dropped following China’s decision to reduce its lending benchmark for the first time in 10 months. However, this move signalled concerns in the metal markets, as it highlighted cracks in the Chinese economy despite the earlier lifting of anti-COVID measures in the year.

On Thursday, copper prices in London reached a seven-week high after a significant decrease in available stocks in London Metal Exchange (LME) warehouses, reaching their lowest level since 2021. Nevertheless, on Friday, copper retreated due to worries about global economic growth, as interest rate hikes offset the support from declining LME stocks, resulting in an overall decline of 2.1% for the week. 

The benchmark copper on the LME, CMCU3, rose by 1% to $8,698 per metric ton, reaching its highest point since May 2 at $8,709.50 and surpassing the 100-day moving average of $8,701.

Regarding aluminium, a recent report stated that the global aluminium door and window market had a value of $55 billion in 2021 and is projected to reach $82 billion by 2031. As of June 23, 2023, the closing price of the LME Aluminium 3-Month contract was $2,245.00 per tonne. 

The LME Aluminium Cash Settlement contract experienced an increase from $2,154.00 to $2,187.50 per tonne in a single day. The LME Aluminium stocks also decreased to 546,362 tonnes compared to 550,914 tonnes on June 21. 

In the steel sector, India’s steel production rose to 122.6 million tons in 2022, making it the sole major producer to achieve output growth amidst a global decline, including China, the world’s largest producer. After declining over 13% throughout May, nickel prices started to rebound in the first half of June.

However, as prices remain within a short-term range without a clear trend, uncertainty and volatility may increase in the upcoming weeks. Iron ore prices are currently high, driven by potential stimulus measures in China for the struggling property sector and other segments of the second-largest global economy, which generate demand.

Among other metals, LME lead CMPB3 and tin CMSN3 reached their highest levels since January 30 and April 19, respectively. By 1017 GMT, lead rose by 0.6% to $2,188.4, and tin increased by 0.6% to $27,517. Aluminium CMAL3 rose by 0.8% to $2,242 while facing resistance from the 21-day moving average of $2,247. Zinc CMZN3 gained 1.5% to $2,451.3, and nickel CMNI3 rose by 0.5% to $21,369.

The week ahead  

The outlook for the copper market remains uncertain.

The most recent Commitment of Traders report from the LME revealed that investment funds for copper have shifted back to a new long position after briefly turning net short at the end of May. The long-term bullish narrative driven by projected supply deficits is still a valid concern for the markets.

However, LME inventory stocks have been trending upward since January. In early June, stocks reached their highest level since November, primarily due to the slowdown in the Western countries. It is expected that prices will rebound from now until early July as these ongoing factors have been factored in, and investor and consumer sentiment is improving.

Goldman Sachs’ commodities team has outlined their projections for iron ore in the upcoming years, as per a recent report. The brokerage firm anticipates a decline in the benchmark iron ore price to an average of $91 per tonne in 2024. 

This decrease is attributed to the rapid growth of supply outpacing demand. While Goldman Sachs predicts a 0.7% rise in iron ore demand, they expect supply to increase by 4%. Subsequently, the analysts forecast a further easing of prices to an average of $86 per tonne in 2025, followed by $83 per tonne in 2026.

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