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January 2022 | Base Metals

Base metals prices consolidate after strong Wednesday performance

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Base metals prices on the Shanghai Futures Exchange and the London Metal Exchange were mixed on the morning of Thursday January 13, but this was after generally strong performances a day earlier when copper breached the $10,000-per-tonne level for the first time since October.

• United States inflation was at 7% in December
• Brainard to say Federal Reserve will focus on tackling “too high” inflation to US Senate banking committee.

Base metals
Three-month prices on the LME were mixed on Thursday morning, with aluminium ($2,956 per tonne) and lead ($2,339.50 per tonne) up by 0.4% and 0.1% respectively, while the rest were down by an average of 0.5%. Copper shed 0.5% to 9,939.50 per tonne.

The most-traded February base metals contracts on the SHFE were mainly higher as they followed the LME’s strong performance on Wednesday, the exception being aluminium, which was down by 1.1%. The other contracts were up by an average of 0.8%. Copper gained 1.4% to 71,500 yuan ($11,236) per tonne.

Precious metals
Precious metals were generally little changed, with spot gold up by 0.1%, at $1,826.49 per oz. Palladium was off by 0.3%, at $1,905.50 per oz, while silver ($23.15 per oz) and platinum ($979 per oz) were little changed.

Wider markets
The yield on US 10-year treasuries remains elevated and was recently at 1.74%, compared with 1.75% at a similar time on Wednesday, but below Monday’s high of around 1.8%.

Asia-Pacific equities were mainly weaker on Thursday: the Kospi (-0.35%), the CSI 300 (-1.37%), the Hang Seng (-0.18%) and the Nikkei (-0.96%). The ASX 200 (+0.48%) bucked the trend, helped by strong commodity prices.

The US Dollar Index broke below support around 95.50 on Wednesday, and was recently at 94.99, with the strong US consumer price index not providing support since the number was widely expected.

With the dollar weaker, other major currencies rallied on Wednesday and were consolidating those gains on Thursday morning: the euro (1.1441), the Japanese yen (114.64), the Australian dollar (0.7284) and sterling (1.3707).

Key data
Key economic data already out on Thursday showed Japan’s preliminary machine tool orders rising by 40.5% year on year in December. While that sounds strong, year-on-year gains have been slipping steadily since last May when they peaked at 140.7%.

Later, there is data on Italian industrial production and US data on producer prices, initial jobless claims and natural gas storage.

In addition, the United Kingdom’s Monetary Policy Committee member Dr Catherine Mann is scheduled to speak. There is also a European central bank economic bulletin, the Bank of England will release its credit conditions survey and US Federal Open Market Committee member Lael Brainard is scheduled to testify to the Senate Banking Committee.

Thursday’s key themes and views
Most of the base metals pushed higher on Wednesday, some more than others, with nickel, tin and copper in the driver’s seat, while zinc was the laggard. The higher prices seem to have run into supply pressures, resulting in a pullback accordingly. We will now need to see how strong underlying buying is. The weaker dollar, inflationary outlook and generally strong economic activity bode well for the outlook, but how China handles outbreaks of the Omicron variant of Covid-19 could be a swing factor.

Gold prices have also picked up in recent days, driven by what we think is a combination of geopolitical tension, concerns about inflation and, more recently, the weaker dollar. There is resistance at $1,830-1,835 per oz, so we wait to see whether prices can climb above that.