Forecasts and market analysis based on price assessments from Fastmarkets MB and Fastmarkets AMM

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January 2022 | Base Metals

Nickel, tin storm ahead while other metals generally firmer after brief consolidation

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Base metals prices on the London Metal Exchange and the Shanghai Futures Exchange were mainly stronger on the morning of Thursday January 20. Aluminium was an exception, but nickel and tin roared higher.

Meanwhile, many cross currents are affecting the markets:

• China cuts mortgage reference rates as it eases monetary policy further
• But some major Western economies are looking to tighten their policies
• How will markets react if Russia invades Ukraine?
• If demand for haven assets rise, the rise in bond yields may falter

Base metals
Three-month contracts on the LME were up by an average of 1.4%, with aluminium ($3,043 per tonne) off by 0.3%, but with strong gains in nickel ($24,400 per tonne) and tin ($43,970 per tonne) that were up by 5.3% and 2.4% respectively. Copper ($9,871.50 per tonne) and zinc ($3,605 per tonne) were up by 0.5% and 0.4% respectively, while lead ($2,357.50 per tonne) was little changed.

Tin prices seem to be reacting to reports that Indonesia had yet to renew export licenses for 2022, and nickel seems to be driven higher by short-covering and ongoing tightness.

Apart from March aluminium that went down by 0.7%, the other most-traded base metals contracts on the SHFE were showing significant gains, especially February nickel that was up by 8% and March tin that was up by 4.4%. The March contracts for lead, zinc and copper were up by 0.9%, 1.8% and 1.3% respectively, with the latter at 70,930 yuan ($11,178) per tonne.

Precious metals
Precious metals picked up on Wednesday with gains averaging 3.1% as demand for haven assets picked up. They are up by an average of 0.6% this morning, with the industrial precious metals leading the way, with gold recently at $1,839.33 per oz, compared with $1,814.15 at a similar time on Wednesday.

Wider markets
The yield on United States 10-year treasuries has slipped slightly and was recently at 1.85%, down from 1.87% at a similar time on Wednesday, which suggests haven buying may be pulling yields back.

Asia-Pacific equities were stronger on Thursday - China’s CSI 300 (+0.92%), the Kospi (+0.72%), the Hang Seng (+2.78%), the Nikkei (+1.11%) and the ASX 200 (+0.014%) - suggesting the earlier reaction in the week to stronger bond yields may be waning.

The US Dollar Index was still consolidating Tuesday’s gains on Thursday morning, as it was a day earlier. It was recently at 95.5, compared with 95.64 at a similar time on Wednesday.

Other major currencies are generally stronger compared with where they were 24 hours ago: the euro (1.1351), the Australian dollar (0.7230) and sterling (1.3627). But the Japanese yen (114.47) was slightly weaker.

Key data
Thursday’s economic agenda is busy with indices for German producer prices and European Union consumer prices scheduled for release, along with US data on the Philadelphia Fed Manufacturing Index, initial jobless claims, existing home sales, natural gas storage and crude oil inventories.

Thursday’s key themes and views
Nickel and tin are following their own agendas as they set multi-year and record highs respectively, while the rest are generally climbing steadily. Overall, the inflationary outlook and generally strong economic activity bode well for the outlook for demand and shipping disruptions are likely to keep supply 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 resume their corrections, then that could drag metals prices downward too. Another area of uncertainty would be if Russia invaded Ukraine - that would likely have a negative impact on broader markets that could also pull metals down, although a less stable central Europe could further threaten metal supply and would likely send energy prices higher that could further affect the profitability of producing metals in Europe. So an invasion may see an initial sell-off in metals, followed by a rally.

Geopolitical tensions and more evidence of inflation seem to be driving gold prices now that bond yields and the dollar have stopped rising, at least for now.