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January 2022 | Base Metals


Base metals on back foot after Thursday gains

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Base metals prices on the London Metal Exchange were down across the board on the morning of Friday January 21, but this was after impressive across-the-board gains averaging 4% a day earlier.

Base metals on the Shanghai Futures Exchange were mixed given they are having to react to Thursday’s gains and this morning’s weakness on the LME.

• Asia-Pacific equities weaker on Friday morning, following Thursday Wall Street weakness.
• Evidence of risk-off around amid slipping United States treasury bond yields, with gold and the Japanese yen up.
• Markets concerned about the Russia/Ukraine situation, weakness in tech stocks.

Base metals
Three-month contracts on the LME were down by an average of 1.1% - ranging between a 0.6% fall in nickel ($23,700 per tonne) and 1.5% for both zinc ($3,618.50 per tonne) and tin ($43,030 per tonne). Copper was down by 1.4%, at $9,894.50 per tonne, and volumes on the LME were above average, with 8,837 lots traded by 6am London time, compared with an average of 5,537 lots at similar times across Monday to Thursday this week.

While prices may be down this morning, they are all at elevated levels overall, so this seems to be some consolidation in light of risk-off in other markets.

The most-traded base metals contracts on the SHFE were mixed on Friday morning, with March aluminium and lead down by 0.4% and 0.3% respectively, March zinc was unchanged, while March tin and copper were up by 0.2% and 0.4% respectively, the latter at 71,110 yuan ($11,215) per tonne. February nickel continued to push higher, with a further 3.7% gain as tightness bites.

Precious metals
Inflationary pressures, weaker US treasury yields and risk-off in broader markets have given haven products a lift. In line with that, precious metals are up by an average of 0.4% on Friday morning, with gold up by 0.1%, at $1,840.40 per oz.

Wider markets
The yield on US 10-year treasuries has slipped further and was recently at 1.78%, down from 1.85% at a similar time on Thursday.

Asia-Pacific equities were weaker on Friday: China’s CSI 300 (-0.98%), the Kospi (-0.99%), the Hang Seng (-0.56%), the Nikkei (-0.9%) and the ASX 200 (-2.27%).

Currencies
The US Dollar Index was still consolidating Tuesday’s gains on Friday morning and was recently at 95.66, compared with 95.50 and 95.64 at a similar time on Thursday and Wednesday respectively.

Other major currencies are looking weaker again after Wednesday’s and Thursday’s consolidation that followed Tuesday’s weakness: the euro (1.1329), the Australian dollar (0.7190) and sterling (1.3585). But the Japanese yen (113.80) was strengthening, again another sign of dip buying.

Key data
Data already out on Friday showed United Kingdom’s GfK consumer confidence falling to -19 for January, from -15 in December.

Later there is data on UK retail sales, European Union consumer confidence and US leading indicators.

In addition, European Central Bank president Christine Lagarde, UK Monetary Policy Committee member Catherine Mann and US Treasury Secretary Janet Yellen are scheduled to speak. It is also Day 5 of the World Economic Forum.

Friday’s key themes and views
Base metals are consolidating after an energetic run to the upside in nickel and tin and further gains in zinc and aluminium. Copper and lead have pushed higher this week but have run into resistance ahead of recent highs. Overall, though, prices remain at elevated levels and the underlying bullish themes remain in place, but we do see potential downside risk should broader markets suffer a deeper correction. Again, we expect dips to attract buying.

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.