Market Commentary Base metals consolidated in a range after the recent slide and could be taking a breather before any fresh directional trade. Nickel prices outperformed on firm iron ore prices. Weak manufacturing and investment data from China reinforced expectations of damage to growth and demand prospects from protracted US-China trade war. China’s industrial output growth slowed unexpectedly in May to a more than 17-year low, with investment also cooling in latest sign of weakening demand. Perspective Copper prices have been hovering around $5800 on LME and looks to be in consolidation phase after brief fall. LME copper inventory saw an inflow of 37.7kt midweek with total stocks increasing to 249kt, the levels not seen since September 2018. LME copper inventory has more than doubled since making bottom of 112kt in March 2019 with on-warrant inventory increasing from bottoms of just 22kt in late Feb to 228kt currently. Higher LME stocks have been keeping the LME forward curve well into Contango with Cash/3M spread currently at around negative US$28/t. The three top unions at the Chuquicamata mine in Chile, representing 80% of the mine’s workforce, rejected a contract offer from state-run Codelco, as it failed to meet key demands such as an adequate health care plan, fair treatment of workers and retirement benefits. This will have an impact — Chuquicamata represents about 2% of global supply of mined copper. But right now market is focusing on trade war and on geopolitical tensions. The copper market is just not on investors’ radar
Please refer to the disclaimer at the end of the report.2 A stoppage at the mine could mean the metal falls into a wider deficit, estimated for this year at 189,000 metric tons by the ICSG. Chuquicamata produced 321,000 tons of copper in 2018 and output is expected to remain flat this year. But the effect of a prolonged strike could be felt more broadly, as the mine’s smelter and refinery process ore from all of Codelco’s northern division, which accounted for half of the state-owned company’s 1.68 million tons of output last year. Trade talks between the world’s two largest economies collapsed last month, with US President Donald Trump accusing China of watering down commitments it had made. Trump raised tariffs on Chinese goods and has threatened even more. China’s industrial output growth unexpectedly slowed to a more than 17-year low in May, while investment also cooled, in the latest sign of weakening demand. Globally, demand for base metals is highly correlated with industrial production. Lead prices gathered some momentum after worries surfaced about lead supplies, mainly used to make auto batteries, have been fuelled by Belgium-listed Nyrstar, which has halted output at its Port Pirie lead and zinc smelter in Australia and declared force majeure. That worry is compounded by one company holding large amounts of lead on LME warrant and can be seen in the premium paid for nearby delivery. The premium for cash over the 3M lead contract stands at about $8 a tonne, having been at a discount at the end of May. It rose to 2-1/2 year highs above $40 a tonne earlier this month. Nickel prices jumped to two-week highs on concerns that supply of the metal from major producer Indonesia would be disrupted as flooding has impacted some mines there. A widespread flooding in Indonesia’s nickel hub of Sulawesi has sparked concerns of disruption in nickel supply from Indonesia, a major producer and exporter of nickel and the main source of supply for China’s stainless steel industry. Nickel stocks in warehouses tracked by the ShFE on Friday jumped 52.6% from two weeks earlier to 5,835 tonnes, and zinc stocks surged 31.7% in the same period to 19,241 tonnes. Growth in demand for batteries is pushing up nickel production around the world.
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