daily metals

This morning Mixed base metal price development this morning. Nickel is op over 2% and zinc about 1%, but lead and zinc are down 1% this morning and the price of aluminium dropped almost 2% since LME closing last Friday.What’s Moving Markets?

Global equities ended last week higher while the USD weakened, after cooler than expected inflation data for the US fuelled speculation that the Fed would slow the pace of interest rate tightening later this year. Markets are betting there is a roughly 70% chance the Fed will raise rates by 50bp when it meets in December. The week ahead: In the US, the most important economic releases include retail sales, producer prices, and housing data. China releases data on industrial production, retail sales, and fixed asset investment. Yields on 10-year US Treasuries fell 30bp to 3.83%, while the USD index weakened by 4.1% to 106.3.

Base metals ended higher amid a softer USD and Chinese leaders advocated a more targeted pandemic approach - by reducing the isolation period as well as testing requirements. Demand headwinds continue to mount. While many market players have sought a reason to be bullish, with equities on the advance, the global demand backdrop remains fragile. US Aluminum Association data showed October 2022 total orders down 4.9% YoY and down 0.6% m-o-m. YTD orders through October 2022 are down 2.1% YoY. The latest Reuters poll of metal analysts showed median forecasts for LME cash prices falling and market balances moving into surplus for 2023, driven by weaker demand.Precious metals were cheered by the inflation data. Gold prices regained the $1,700 mark and extended gains, after a lower-than-expected US inflation reading pushed the USD down amid prospects the Fed will not have to tighten monetary policy much more. Most investors now see a 50bp rate hike next month instead of another 75bp. The Fed said that the terminal rate at which the cycle ends is more important than the pace of increases. Elsewhere, investors continued to watch for policy signals from China on whether it is considering dialling back its zero-Covid policy. China is the world’s second largest market for gold jewellery next to India. Risk on appetite boosted the PGMs on hopes that a demand recovery is on its way. EU member states agreed at the end of October to ban the sale of new combustion engine cars from 2035, officially steering the bloc towards the switch to all-electric mobility – and putting an end date on new palladium autocatalyst demand in one of the largest markets. In Q322, the market share of HEVs grew 7% YoY, which was overshadowed by BEV sales which grew 22% YoY and accounted for 12% of the EU market share. However, most alternatively-powered vehicles sold in the EU are hybrid or plug in hybrid. This supports palladium (and rhodium) demand as the majority of HEVs have petrol engines, according to Heraeus.  Iron ore edged up amid the risk-on tone to other markets. A price bottom might be in place but a sustainable rally back towards the $100 mark remains in doubt given the woes of China’s huge property sector.

Theme of the Day: LME discussion paper on Russian metal - LME response

The LME said on Friday it will not ban Russian metal from being traded and stored in its system because for the most part a significant portion of the market is still planning to accept it in 2023. The exchange published its response to the Discussion Paper on Russian Metal (“Discussion Paper”), summarising market feedback, as well as the LME’s considerations in respect of that feedback, and the LME’s conclusions.

The Discussion Paper laid out three potential paths forward - namely, maintaining the status quo (Option A), prohibiting the warranting of new Russian metal from LME warehouses (Option C), or the imposition of thresholds or similar limits on the warranting of new Russian metal (Option B).

In summary, the LME has concluded, on the basis of feedback received, that the thesis which would underpin fears of a disorderly market (in particular, a sufficiently large proportion of global consumers refusing to accept Russian metal in 2023) is not supported by evidence at this time. Accordingly, the LME does not propose to prohibit the warranting of new Russian metal (Option C). Additionally, feedback clearly indicated that thresholds or similar limits would be too complex to be practicable (Option B). As such, the LME will proceed with the status quo in respect of Russian metal (Option A).

The LME is also aware of market concern that the publication of the Discussion Paper could itself give rise to large inflows of Russian metal onto warrant. However, as the updated statistics in this document show, there have been no significant moves of this nature. The LME believes that the market can take a degree of confidence that the deposited Russian metal will remain consumable by the market, which would not then trigger the disorderly market concerns. Additionally, the LME believes that the existing mechanisms for calculating premia above the LME’s base price will be responsive to these circumstances.

Although it was not proposed in the Discussion Paper, the LME has also received a number of requests for further transparency as to the origin of metal stocks in the LME system. The Exchange believes that such transparency could indeed be valuable more broadly and intends to provide this reporting as of January 2023.