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January 2022 | Base Metals

Base metals prices mixed after recent volatility, ahead of Lunar New Year

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Base metals prices on the London Metal Exchange and Shanghai Futures Exchange were mixed on the morning of Friday January 28 amid a consolidation after the recent volatility across a broad section of markets and ahead of the Lunar New Year holiday, which in China runs from January 31 to February 6.

• Western equity index futures point to stronger opening.
• US Dollar Index climbs to levels not seen since July 2020.

Base metals
Three-month base metals prices on the LME were more positive than negative on Friday morning with the market as a whole up by an average of 0.1%. Nickel was the metal showing the most weakness, with prices off by 1% at $22,240 per tonne, while lead was off by 0.2% at $2,311.50 per tonne. The rest were all up either side of 0.5%, with copper up by 0.4%, at $9,768 per tonne.

On the SHFE, the March contracts for copper, nickel and lead were weaker by an average of 0.8%, while the rest were up by an average of 1.2%, led by a 2.5% gain in zinc. March copper was down by 0.3%, at 70,300 yuan ($11,043) per tonne.

Precious metals were mixed - platinum was up by 0.4%, at $1,027.50 per oz, palladium was down by 1%, at $2,349 per oz, while silver ($22.68 per oz) and gold ($1,796.76 per oz) were little changed – although gold has slumped in recent days, considering it was as high as $1,853.90 per oz earlier this week.

Wider markets
The yield on United States 10-year treasuries has eased to 1.82% this morning, compared with 1.84% at a similar time on Thursday.

Asia-Pacific equities were mixed on Friday: the Kospi (+1.87%), the Nikkei (+2.09%), the ASX 200 (+2.19%), China’s CSI 300 (-1.21%) and the Hang Seng (-1.13%).

The US Dollar Index continues to be catapulted higher following the change in the US Federal Reserve’s stance on Wednesday and was recently at 97.34 - this after 96.67 and 95.97 at similar times on Thursday and Wednesday respectively.

Other major currencies continued to weaken: the euro (1.1131), the Australian dollar (0.7018), the Japanese yen (115.64) and sterling (1.3385).

Key data
Key economic data already out on Friday showed French consumer spending climbing by 0.2% in December, down from a 0.9% rise in November, and French gross domestic product rising by 0.7% in the fourth quarter after a 3% rise in the third quarter.

Later there is data on German import prices, German and Spanish GDP, European Union M3 money supply, German GDP, EU private loans, as well as US data on personal consumption expenditures, consumer price index, employment cost index, personal income and spending and revised University of Michigan consumer sentiment and inflation expectations.

Friday’s key themes and views
There was not too much follow-through weakness across the base metals on Thursday, following Wednesday’s Federal Reserve announcements, so for now we think the metals will continue to experience dip buying. Liquidity will likely fall next week with China's markets closed for the Chinese New Year, so trading may get more volatile, or the market may take the opportunity to reassess what lies ahead. Overall, while equities may react further to the prospect of higher interest rates, the outlook for metals does not seem damaged.

Gold has pulled back, which is not surprising given the strong upward move in the dollar, but with inflation and geopolitical uncertainty in focus, the weaker gold price may well look attractive for investors looking for a haven.