Metals Update – 7 June

The Week Before

Last week, copper prices retreated towards a six-month low after the release of data indicating a more significant decline in China’s factory activity in May than initially expected. China’s factory activity serves as a crucial indicator for the global consumption of copper, making it an important gauge of global economic health. Copper prices have experienced a 6% decline since the previous month, following a drop of approximately 4.5% the month before.
Global markets continued to exhibit a bearish sentiment, with Asian and European stock markets recording declines. Additionally, investors remained cautious due to an upcoming vote in Washington regarding the U.S. debt ceiling, which further impacted demand-related concerns. The depreciation of the Chinese yuan against the dollar added pressure on dollar-priced metals by increasing costs for Chinese buyers.
While LME three-month contracts traded around the key level of $8,000 USD/MT, experiencing a rebound from the tested levels of $7,900 USD/MT earlier in the week, there was a doubling of LME warehouse inventories to 100,000 tonnes. This increase suggests that producers anticipate higher demand. The easing of concerns around U.S. debt default also contributed to some bullish sentiment in the market. Other non-ferrous metals followed a similar trend last week, with three-month LME zinc contracts declining to $2,250 USD/MT, and three-month LME aluminum dropping to $2,221 USD/MT. Nickel’s three-month contracts reached $20,500 USD/MT, while three-month tin declined to $25,200 USD/MT, and lead experienced a 1.7% slip to $2,030 USD/MT.

The Week Ahead

In the upcoming week, it will be intriguing to observe the complete impact of the unprecedentedly high zinc inventories reaching LME warehouses in Malaysia. The continuous inflow of zinc into storage facilities indicates an oversupply of this metal, commonly utilized for galvanizing steel. The surplus can be attributed to weak demand from the construction sector.
Based on LME data, zinc deposits in LME warehouses have surged to 87,500 tonnes, representing a substantial 90% increase since the previous Tuesday and reaching the highest level since May 2022. Recent shipments amounting to 13,175 tonnes arrived at warehouses situated in Port Klang, Malaysia, while the majority of the accumulated metal from last week was stored in Singapore.
The remarkable surge in LME zinc stocks, which has risen by a staggering 461% since early February, has bolstered confidence in the LME market regarding the availability of zinc for prompt delivery. Consequently, a discount has emerged for the cash contract when compared to the three-month LME zinc contract.

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