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January 2022 | Base Metals

Base metals weakened as combination of events rattles broader markets

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Base metals prices on the LME and SHFE were mainly weaker on the morning of Tuesday January 25, in response to risk-off moves in broader markets caused by growing concerns over the potential for concerted central bank tightening and Russia’s ambitions in Ukraine.

* Western equity markets sold-off sharply on Monday January 24, with intraday losses of 3.2% on the Dow Jones Industrial Average and 4.5% on the Euro Stoxx 50 index.
* Geopolitical concerns about the stand-off between Russia and Ukraine escalate as troops put on standby.
* Safe-havens in demand.

Base metals
Three-month base metals prices on the London Metal Exchange were down by an average of 0.6%, with the main movers nickel, which was off by 1.9% to $22,110 per tonne and tin, which was down 1.15% at $41,750 per tonne. This was probably because these two metals have risen the most in recent days. The rest of the base metals complex, meanwhile, was much more subdued, with zinc bucking the trend and rising by 0.3% to $3,591.50 per tonne, while the others all fell. Lead dropped 0.1% to $2,337 per tonne, aluminium was down by 0.2% at $3,033 per tonne and copper was down by 0.4% to $9,712.50 per tonne. All in all the metals have held up relatively well so far.

The most-traded base metals contracts on the Shanghai Futures Exchange were down across the board and showing larger losses that averaged 3.3%, skewed by an 8% drop in March nickel and a 5.2% fall in March tin. The others were down by an average of 1.4%, with March copper down by 2% at 69,680 yuan (411,008) per tonne.

Precious metals were mixed on Tuesday morning, with gold down 0.1% at $1,841.03 per oz, palladium down 0.2% at $2,140 per oz, platinum 0.5% lower at $1,021.50 per oz and silver down 0.6% at $23.79 per oz. Gold has generally held up well, but has not rallied on the back of the pick-up in risk-off sentiment.

Wider markets
The yield on US 10-year treasuries has slipped further and was recently at 1.75%, down from 1.77% on Monday’s close.

Asia-Pacific equities were weaker on Tuesday: China’s CSI 300 (-2.26%), the Kospi (-2.56%), the Hang Seng (-2.21%), the Nikkei (-1.66%) and the ASX 200 (-2.49%).

The US Dollar Index edged up on Tuesday morning and was recently at 95.95, compared with 95.75 at a similar time on Monday.

Other major currencies were mixed: the euro (1.1314) was consolidating after a recent pullback, the Australian dollar (0.7137) and sterling (1.3478) were weaker, but the Japanese yen (113.75) was firmer.

Key data
Data already out on Tuesday showed the Bank of Japan’s core consumer price index rose by 0.9% in December, after a previous reading of 0.8%.

Later on today, there will be data on the United Kingdom’s public sector borrowing and industrial order expectations, Germany’s business climate, along with US data on house prices, consumer confidence and the Richmond manufacturing index.

Tuesday’s key themes and views
Base metals are understandably weaker on the back of the weakness in other markets, but prices are still relatively strong, which suggests there is not a lot of appetite to be offloading positions. As such, we expect this weakness to be seen as yet another buying opportunity. That said, there may still be further weakness given the nervousness in the market and ahead of Wednesday’s US Federal Open Market Committee meeting. Given that nervousness, the Federal Open Market Committee (FOMC) may end up being less hawkish than the market expects.

In this current climate of geopolitical tensions, inflation and market nervousness, gold may well attract more haven interest.