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January 2022 | Base Metals


LME nickel, lead prices upbeat; other base metals mixed with rallies paused

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Base metals prices on the London Metal Exchange and the Shanghai Futures Exchange were mixed on the morning of Friday January 14, with only nickel and lead prices continuing to rise, while the rallies in the other metals seem to have paused.

* Debt with sub-zero yields falls below $10 trillion in early January, down from $18 trillion at the end of 2020
* Nasdaq 100 fell 2.5% on Thursday as US Fed officials turned more hawkish as they focus on inflation
* China’s exports climbed 21% in December, with imports up by 19.5%

Base metals
Three-month prices on the LME were mixed on Friday morning, so while lead ($2,358.50 per tonne) and nickel ($22,295 per tonne) pushed higher with gains of 0.4% and 0.5% respectively and tin was untraded, the other base metals were consolidating recent gains in high ground, with copper was off by 0.5% at $9,915.50 per tonne.

The most-traded February base metals contracts on the SHFE were also mixed and more polarized with aluminium down by 2.5%, while lead was up 1.7%, nickel up 0.7%, tin off by 0.9% and zinc little changed. Copper was down 0.7% at 71,390 yuan ($11,239) per tonne.

Precious metals
Precious metals were upbeat, this despite hawkish talk from US Federal Reserve officials. The complex was up by an average of 0.6%, with spot gold up by 0.4% at $1,827.39 per oz. The weaker dollar seems to be providing support.

Wider markets
The yield on US 10-year treasuries edged lower despite the hawkish comments, suggesting some pick-up in risk-off. It was recently at 1.72%, compared with 1.74% at a similar time on Thursday.

Asia-Pacific equities were weaker on Friday in the wake of weakness in US markets on Thursday: the Kospi (-1.36%), the CSI 300 (-0.65%), the Hang Seng (-0.59%), the Nikkei (-1.28%) and the ASX 200 (-1.08%).

Currencies
The US Dollar Index broke below support around 95.50 on Wednesday, and was recently at 94.76, compared with 94.99 at a similar time on Thursday.

With the dollar weaker, other major currencies rallied on Wednesday and were edging higher on Friday morning: the euro (1.1463), the Japanese yen (113.78), the Australian dollar (0.7281) and sterling (1.3717).

Key data
Following on from China’s trade data, as mentioned above, key economic data out later includes a barrage of UK statistics on construction, GDP, trade, industrial and manufacturing production, along with leading indicators and indices of services; in Europe, there is data on consumer prices, the EU trade balance; and US data includes retail sales, import prices, industrial production, capacity utilization and University of Michigan consumer sentiment, along with inflation expectations and business inventories.

In addition, European Central Bank president Christine Lagarde and US Federal Open Market Committee member John Williams are scheduled to speak.

Friday’s key themes and views
For now lead and nickel remain upbeat, but the other base metals seem to be paying more attention to what the broader markets are doing and how they may react to further signs that central banks are getting more hawkish. South Korea’s central bank raised interest rates by 25 basis points to 1.25% this morning. Overall, the inflationary outlook and generally strong economic activity bode well for the outlook for demand and while shipping disruptions remain, supplies are likely to remain tight.

Gold prices have also picked up in recent days, driven by what we think is a combination of geopolitical tensions, 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 are able to climb above that.