metals daily 23.11.22

This morningNickel is up this morning by 1.5%. The rest of the base metals are near the LME\s closing price last night.

What’s Moving Markets?Global equities rallied, as investors digested a slew of corporate results and Fed speeches. The Fed has recently thrown cold water onto expectations that it will soon pause its aggressive tightening campaign. San Francisco Fed President Mary Daly and her Cleveland counterpart Loretta Mester were among the latest officials to echo this view, although signalling support for a smaller 50bp hike in December. The OECD expected growth next year of just 0.5% in the Eurozone, with Germany's Russian-gas-dependent economy contracting 0.3%. Yields on 10-year US Treasuries fell 7bp to 3.76%, while the USD index was 0.6% weaker at 107.1.

Precious metals ended mixed; gold was unchanged whilst platinum gained at the expense of palladium. On the supply side, the platinum market deficit could deepen to 219koz in 2023, compared with a 974koz surplus in 2022, according to data from the World Platinum Investment Council. Global gold backed ETFs have registered over 37t ($2bn) of net outflows month-to-date (week ending 18 Nov). These outflows are across regions, predominately from North America and Europe. This takes YTD net outflows to ~90t ($3bn).

Base metals prices have rallied across the complex, with the weakening USD potentially a contributory factor. Demand optimism kindled by China easing some Covid restrictions has faded as cases have risen and new curbs have been imposed, which will further undermine industrial activity. Fears of supply disruptions also eased after BHP averted a strike at its Escondida copper mine in Chile. Union leaders agreed to a new salary package, which included productivity measures and a one-time bonus. Codelco, the world’s biggest copper producer, will halve its refined copper sales to China in 2023, citing major production challenges at its Chuquicamata complex and closure of the Ventanas smelter, both in Chile. Nickel came under pressure after reports suggested Chinese stainless steel mills are likely to cut production by 4.9% this month from October due to weaker demand. Meanwhile, Norilsk is ramping up production capacities at the Norilsk Concentrator, part of its Medvezhy Ruchey unit. This includes the installation of a new crushing unit that will enable to process up to 9.2Mt of nickel and copper ore per year. Alcoa supports an idea proposed last week by Russian producer Rusal for the LME to provide details about the origin of all metal in LME approved warehouses. Thinner markets and low LME nickel stocks (<50kt, a 14-year low) has exacerbated market moves.

Iron ore was weaker on rising Covid-19 cases in China and a lack of import arbitrage. A group of steel mills in Tangshan are cutting production by 30% for 10 days from 15 November, according to Mysteel. However, the impact is likely to be muted on account of softening demand trends and industrial activity being curbed amid newly imposed Covid restrictions.Theme of the Day: Base metals except Zn & Ni in deficit in Jan-Sep 2022 - WBMS

The World Bureau of Metal Statistics (WBMS) published preliminary data on global supply, demand, inventories, and market balances for non-ferrous metals in Jan-Sep 2022. It noted that the impact of the Covid-19 pandemic has had a dramatic effect on both the supply and demand for metals worldwide. In particular, production and demand were unusually depressed in many countries early in 2020 and so YoY comparisons may appear distorted. The most recent metal balances report shows the primary aluminium, copper, lead and tin metal balances were in deficit and zinc and nickel metal balance was in surplus during Jan to Sep 2022. Over the longer-term, global refined metals market balances (surplus/deficit) and resulting changes in inventories (rising/falling) drive price performance.

The calculated market balance for primary aluminium was a deficit of 822kt which follows a deficit of 1,600kt recorded for 2021.

The copper market recorded a deficit of 736kt which follows a deficit of 285kt in 2021.

The zinc market was in surplus by 291kt which compares with a deficit of 115.6kt recorded in 2021.

The nickel market was in surplus with apparent production exceeding demand by 10.5kt. In 2021, the calculated deficit was 180.3kt.

The lead market recorded a deficit of 167kt which follows a deficit of 90.1kt recorded in 2021.

The tin market recorded a deficit of 8.5kt which follows a surplus of 2.1kt recorded in 2021.

Investor positioning - whether speculative, passive, or systematic - and technical factors such as chart patterns are more important in determining short-term moves in metals prices than market fundamentals as reflected in the WBMS data. Positioning-wise, most LME metals are still seeing short-covering, although the intensity has been weaker than last week's. Tin reports the biggest change in terms of % of OI for a second week while nickel has been net spec long for a third week. according to brokers’ estimates.