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January 2022 | Base Metals


Metals consolidate on broader market weakness, but most still upbeat

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Base metals prices on the London Metal Exchange and the Shanghai Futures Exchange were mixed on the morning of Wednesday January 19 amid headwinds from stronger bond yields and weakness in equities.

• United States 10-year treasury yields rise to 1.87%; market starting to anticipate a faster tightening of monetary policy.
• Geopolitical tensions over Russia, Ukraine running hot.

Base metals
Three-month contracts on the LME were mixed on Wednesday morning with prices ranging from being down by 0.7% for tin ($42,000 per tonne) and being up by 0.4% for lead ($2,326 per tonne). Copper was up by 0.3%, at $9,705 per tonne. Overall, though, base metals are holding up on high ground.

The most-traded base metals contracts on the SHFE were also mixed. The March contracts for aluminium and zinc were up by 1.1% and 1.2% respectively, while March lead was down by 1%. February tin was up by 0.6%, while February nickel and March copper were both down by 0.2% with the latter at 69,890 yuan ($11,008) per tonne.

Precious metals
The more industrial precious metals were up by between 0.2% for platinum ($982.50 per oz) and 0.5% for palladium ($1,901.50 per oz), while spot gold was unchanged, at $1,814.15 per oz.

Wider markets
The yield on US 10-year treasuries continues to climb. It was last at 1.87%, up from 1.83% at a similar time on Tuesday.

Asia-Pacific equities were weaker on Wednesday: China’s CSI 300 (-0.88%), the Kospi (-0.77%), the Hang Seng (-0.35%), the Nikkei (-2.8%) and the ASX 200 (-1.03%).

Currencies
The US Dollar Index was consolidating Tuesday’s gains this morning and was recently at 95.64, compared with Tuesday rebound high of 95.83.

Other major currencies are also mainly consolidating: the euro (1.1336), the Australian dollar (0.7195) and sterling (1.3608). The Japanese yen (114.28) is strengthening, which might be a sign of a pick-up in risk-off.

Key data
Wednesday’s economic agenda is busy with German and United Kingdom consumer price indices scheduled for release, along with those for producer prices, retail prices and house prices in the UK, as well as data on the European Union’s current account.

There is also US data on building permits and housing starts.

In addition, Bank of England governor Andrew Bailey is scheduled to speak and the World Economic Forum in Davos continues.

Wednesday’s key themes and views
Base metals look upbeat for the most part, with nickel, aluminium and tin either extending their gains, or holding up well, while zinc and copper are rangebound. Lead started to show some weakness on Tuesday. Overall, the inflationary outlook and generally strong economic activity bode well for the outlook for demand and with shipping disruptions set to remain, supply is likely to stay tight. One of the areas to watch that could dampen sentiment for metals is the broader market’s reaction toward higher interest rates - if equities continue to correct then, that could drag metals prices downward too.

Higher US treasury yields and a rebounding dollar seem to have capped gold prices for now, but concerns about inflation and geopolitical tension are expected to keep the metal underpinned.