Metals mixed as supply issues persist
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Sentiment suffered after strong US economic data lowered expectations of an aggressive rate hike cycle by the Fed. Supply side issues across the metals helped limit the losses.
Prices and commentary accurate as of 07:00 Sydney/05:00 Singapore/17:00(-1d) New York/22:00(-1d) London.
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Market Commentary
Base metals were up strongly in Asian trading as supply side issues remained in focus. Zinc led the sector higher after Teck Resources lowered its output targets following a fire at its Canadian smelter. The company said refined zinc production this year may be 12% lower than previously expected. While the 40kt cut to guidance is relatively small, it comes amid other disruptions hitting the market. Global mine production fell by 4.2% in the first eight months of the year, according to data from the International Lead & Zinc Study Group. Last week, Sibanye Stillwater said it expects operations at its Century zinc mine in Australia to be suspended until mid-November after a bushfire damaged some equipment. Weak treatment charges amid a tight copper concentrate market are also raising concerns in China. Ge Honglin, Chair of the China Nonferrous Metals Industry Association, said China should impose curbs on its copper industry to halt a rapid expansion that’s already triggered a profit collapse across the sector. Ge said China’s annual copper capacity will rise to 17mt by 2027, up from 14.3mt in 2023 and reaching a level that will be sufficient to meet domestic demand at that point. Together with new smelters in the rest of the world, this will worsen global overcapacity, he said. Nevertheless, the sector gave up most of the early gains after strong US economic saw traders lower their expectations of an aggressive rate-hike cycle.
Iron ore edged higher as the market awaits China’s upcoming legislative meeting for more details on stimulus measures. In the meantime, data suggest demand remains weak. Inventory levels at major Chinese steel mills rose 4.96% to 15.5mt in mid-October compared with early October, according to data from China Iron and Steel Association. Volumes were 6.4% lower than the same period last year. Daily crude steel production at major Chinese steelmakers in mid-October added 1.1% from early October to 2.07mt a day.
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Gold shrugged off the stronger US data to end the session higher as investor demand shows no signs of abating. Palladium surged nearly 10% following reports that the US had asked allies to consider sanctions against gold exports. The Biden Administration floated the idea at a meeting of G7 finance officials in Washington this week. Russia’s Norilsk Nickel accounts for around 40% of global output. The possibility of disruptions to Russian supply comes as the rest of the market struggles to maintain output.
Crude oil extended gains, as traders continued to pare back geopolitical risk premium amid Israel-Hamas ceasefire talks. Negotiators will meet next week in a renewed effort to end the conflict in Gaza. The US is exploring different options to restart talks, said US Secretary of State, Antony Blinken, in Qatar. This comes on the back of a bearish EIA inventory report, which signalled weak demand in the US.
North Asian LNG pushed higher as traders fretted about supply disruptions. One train at the Sabine Pass LNG as shut down, resulting in a 20% hit to feed gas. This comes after the Cameron LNG plant went offline.?
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Chart of the Day
Oil volatility has spiked amid rising geopolitical tensions.