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

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May 2022 | Base Metals

Base metals’ rebounds pause as global slowdown concerns dominate

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Base metals prices on the London Metal Exchange and the Shanghai Futures Exchange were mainly weaker on the morning of Thursday May 26 amid a lack of direction.

• More central banks are tightening monetary policy; South Korea is the latest
• Japan’s services producer price index climbed 1.7% in April, after a 1.3% rise in March

Base metals
Three-month base metals prices on the LME - with the exception of lead that was up by 0.3% at $2,099.50 per tonne and nickel that had not opened yet - were down by an average of 0.5% on Thursday morning. Tin was off the most with a 1.7% decline to $33,615 per tonne, while copper was off by 0.4% at $9,337 per tonne.

Volumes remained low, with just 2,169 lots traded by 5.45am London time.

The most-traded contracts on the SHFE were down by an average of 0.8% on Thursday morning. July aluminium and June nickel were bucking the trend, with gains of 0.7% and 0.3%, while the rest were down by an average of 1.5%, skewed by a 4.4% fall in June tin. July copper was down by 0.2%, at 71,280 yuan ($10,666) per tonne.

Precious metals
Gold prices had been more upbeat in recent days, but more recently have been giving back some of those gains. Gold was down by 0.4% this morning at $1,845.07 per oz. In contrast, the recent range was $1,787.90-1,869.65 per oz. Silver ($21.77 per oz) has been following gold's path, while the platinum group metals have been more sluggish.

Wider markets
United States 10-year treasury yields continued to weaken on Thursday morning and were recently at 2.75%, down from 2.84% at a similar time on Wednesday, and down from recent highs of 3.12%. This suggests a pick-up in risk-off.

Asia-Pacific equities were mixed on Thursday following Wednesday’s strength in US equities: the Nikkei (-0.12%), the Kospi (-0.48%), the CSI 300 (+0.7%), the Hang Seng (-0.54%) and the ASX 200 (-0.52%).

The US Dollar Index is consolidating and was recently at 102.22 on Thursday morning, up from Tuesday’s low of 101.64 and after the 19-year high of 105.02 on May 13.

The other major currencies were consolidating after their recent bounce: the euro (1.0676), the Japanese yen (127.28), sterling (1.2560) and the Australian dollar (0.7064). The Chinese yuan, which had rebounded, is now weakening again. It was recently at 6.7428 on Thursday morning, after recently becoming as strong as 6.6365 and as weak as 6.8111 on May 13.

Key data
Key economic data out on Thursday includes US data on preliminary gross domestic product, initial jobless claims, gross domestic product price index, pending home sales, natural gas storage and Chinese leading indicators.

Thursday’s key themes and views
Base metals generally seem to be consolidating after their recent rebounds, which suggests they are trying to confirm whether bases are in place or not. But with China warning that its economy might struggle to record positive growth this quarter, there might not be much buying pressure around in the market. Overall, expect more range trading as the market awaits developments.

Gold prices had rebounded in line with the stronger tone in the base metals space, but prices have also pulled back with the easing of base metals. Despite central banks' measures to bring inflation under control, for now inflation is raging and that should underpin commodities, especially gold since investors are familiar with how to use it as a hedge against inflation.