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

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May 2022 | Base Metals

Base metals mainly under pressure as rebounds pause

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Base metals prices on the London Metal Exchange were mainly weaker on the morning of Tuesday May 24, while those on the Shanghai Futures Exchange were more mixed.

• United States President Joe Biden considers easing tariffs on China
• Japan’s flash manufacturing purchasing mangers’ index (PMI) dips to 53.2, from 53.5
• Bank of Japan’s core consumer price index (CPI) climbs to 1.4%, from 1.1%

Base metals
Three-month base metals prices on the LME, with the exception of zinc that was little changed and nickel that has not opened yet, were down by an average of 0.2% on Tuesday morning. Copper was off the most; it declined by 0.4% to $9,494.50 per tonne.

Volumes remained low, with 2,415 lots traded by 5.45am London time.

The most-traded contracts on the SHFE were mixed, with June copper, June zinc and July lead up by an average of 0.3%, with copper up by 0.1%, at 72,100 yuan ($10,816) per tonne. The other metals were down by an average of 1.6%, led by a 2% decline in June nickel.

Precious metals
Gold prices have been more upbeat of late and were up by 0.1% at $1,855.42 per oz this morning. Silver was little changed, at $21.73 per oz, platinum was gained 0.2% to $953 per oz and palladium was up by 0.9% at $2,006.50 per oz.

Wider markets
US 10-year treasury yields were drifting on Tuesday morning and were recently at 2.84%, down from 2.92% a week ago and lower than recent highs of 3.12%

Asia-Pacific equities were weaker on Tuesday following overnight weakness in the US tech sector: the Nikkei (-0.79%), the Kospi (-1.26%), the CSI 300 (-1.38%), the Hang Seng (-1.73%) and the ASX 200 (-0.13%).

The US Dollar Index is consolidating this morning and was recently at 102.25, up from Monday’s low of 102.03 and after the May 13, 19-year high of 105.02.

Other major currencies were consolidating after their recent bounce: the euro (1.0666), the Japanese yen (127.67), sterling (1.2569) and the Australian dollar (0.7084). China’s yuan has been rebounding since May 16, and was recently at 6.6676, after being as weak as 6.8111 on May 13.

Key data
Tuesday’s key economic agenda is busy with the focus in flash manufacturing and service PMIs out across Europe and the US. In addition, there is data on United Kingdom realized sales, US new home sales and the US Richmond manufacturing index.

In addition, numerous central bankers are scheduled to speak on Tuesday, including the UK’s Monetary Policy Committee member Silvana Tenreyro, US Federal Reserve chair Jerome Powell and European Central Bank president Christine Lagarde.

Tuesday’s key themes and views
Base metals have been rebounding in recent days and that seems to be on the back of hopes that China is able to continue to reopen Shanghai and that the Chinese government follows through with its promises of more stimulus. The turnaround in the US dollar has also made a headwind into a tailwind. Our stance of late has been to run with the rebound, but keep an open mind as to how long it may last - the manufacturing world outside of China is unlikely to have felt the full impact of China's lockdowns and its constrained exports yet.

Gold prices have also been rebounding in line with the stronger tone in the base metals and weaker dollar and it looks like bargain hunting has been taking advantage of the recent price softness on the view that commodities will act as an inflation hedge.