metals daily (EN)

This MorningNickel gained a little over 0.5% on this early Wednesday morning. Copper, lead and zinc all lost around 0.5%. Both aluminium and tin lost more than 1.5%. What’s Moving Markets?Global equities were little changed, as markets awaited the Fed’s interest rate cut decision. What the Fed will do remains front and centre of market minds. A 25bp cut might disappoint markets. The odds for a jumbo 50bp cut currently standing above 60%. Retail sales in the US unexpectedly edged up 0.1% in Aug, compared to forecasts of a 0.2% fall, and following an upwardly revised 1.1% surge in Jul. Growing expectations of an aggressive rate cut boosted sentiment across the commodities complex. Prospects of Fed rate cut pushed gold to a record high, while ongoing supply disruptions supported oil markets. Yields on 10-year US Treasuries rose 2bp to 3.65%, while the USD index was 0.25% stronger  at 101.

Precious metals were little changed, although palladium rallied on short-covering amid tighter supply. Interest in gold remains strong, as we saw more net inflows in global gold ETFs last week - $983mn. While western investors drove the bulk of the inflows, all regions contributed positively. As the opportunity cost of holding gold decreases, we may see increased demand for gold-backed ETFs. Falling real rates and a weakening USD will likely strengthen the inverse relationship they have with gold during the upcoming easing cycle. Gold reserves at the National Bank of Kazakhstan fell by 5t in Aug - the fourth consecutive month of sales (following four consecutive months of purchases). Gold holdings now stand at 290t, 4t lower than the end of 2023. While gold has captured most attention, silver supported by industrial metal strength is once again outperforming. While gold’s new record high has captured most attention, silver has outperformed this month, delivering returns twice as large. Silver’s dual role as both a precious and industrial metal means its price is influenced by gold, industrial metals, and the USD. Investors cautious about paying record-high prices for gold may see better value in silver, which remains well below its 2011 record of $50. For silver to attract more buyers, a break above the May high is needed.

Base metals were subdued with China on holiday. Copper is underpinned by signs of improving physical demand. Physical import premiums have sharply recovered, up to $75/t this week from $0 in Jul as demand gets back on track and SHFE inventories continue to destock, down -40% since Jul. China’s aluminium output hit 3.73Mt in Aug, up 2.5% YoY and the highest since 2002, according to the National Bureau of Statistics. Saudi Arabian Mining Co (Ma’aden) & Aluminium Bahrain (Alba) signed a non-binding head of terms to pursue a merger, they said. "This combination will allow both companies to scale-up production, extend our global presence & explore new opportunities in clean energy," Alba chair said. The nickel market is no longer afraid of losing Russian supply if export restrictions are enforced by President Putin. Instead of an acute supply deficit, there's now a massive surplus after Chinese producers made the processing leap of converting Indonesia's relatively low-grade ore into Class I refined metal. The LME has listed five new brands of Chinese nickel as "good delivery" against its contract. The first Indonesian brand was approved in May. The effect has been a rapid rise in LME inventories, which have almost doubled since Jan to 123,726t. Another 65,000t were sitting in off-warrant storage at the end of Jul, according to the LME's most recent monthly report. In the period 2024 to 2028, world copper mine capacity is expected to grow at an average rate of around 3.3% per year, according to the ICSG. This compares to growth of around 1%/year was seen over 2017-2020 as no major copper mine projects were commissioned with the exception of Cobre Panama.

Iron ore remained under pressure. China’s crude steel production dropped 6.1% in Aug to 77.92Mt, marking the third consecutive monthly decline, driven by weak prices and sluggish demand from the property and manufacturing sectors. Although robust steel exports provided temporary relief, output is expected to rebound in Sep as margins improve. However, uncertainty surrounding China's 2024 steel output cap continues to weigh on sentiment. Supply is rising, with Port Hedland exports hitting 47.83Mt in Aug, up from 43.16Mt in Jul.