Copper prices zoomed once again above $9600 per tonne last week surging to its highest levels in six weeks, as investors shifted focus from a subdued equities market to more attractive assets.
Also, helping the prices are the floods in central China, especially in the industrial and transport hub city of Zhengzhou, which has raised supply concerns and demand for rebuilding damaged infrastructure, which will consume industrial metals. Chinese equities slumped as the education and property sectors were under pressure on worries over heavy-handed government regulations, making commodities like metals an attractive alternative investment.
China will sell another 30,000 tonnes of copper, 90,000 tonnes of aluminium and 50,000 tonnes of zinc from its state reserves on July 29. The auction marks the second sale by the world's top metals consumer this month as Beijing aims to rein in skyrocketing commodity prices. China has sufficient reserves and is confident that it will be able to stabilise expectations and cool the market. The fresh selling is a follow up from the previous one where they had sold 20,000 tonnes of copper, 50,000 tonnes of aluminium and 30,000 tonnes of zinc reserves on July 5. More than 200 non-ferrous fabricators attended the bidding, with transaction prices 3-9 percent lower than market prices that day.
Also, European Central Bank (ECB) had its policy meet last week where it pledged to keep interest rates at record lows for even longer to boost sluggish inflation. There has been a shift in the market swing which is quite visible in prices. Continued loose monetary policy of the ECB last week, and FOMC meeting this week will be even more important to set the short term trend in metals. Demand optimism seems to have regained the upper hand. Just two or three days ago, there were concerns that the rapid spread of the delta variant would hit demand, but this seems to have taken a back seat now.
Lead has been gaining some strength over the last few days with falling inventories which are at a 1 month low and flash floods in Germany hitting the European markets. The premium for LME cash lead over the 3-month contract hit $38.50 a tonne, it’s highest since March last year, indicating tightening nearby supply.
Nickel prices surged to its highest in 5 months surging over $19500 per tonne. The narrative for nickel has moved from nickel being a tight battery-grade metal market to simply a tight refined metal market. The World Bureau of Metal Statistics reported this month that the nickel market was in deficit during the January to May 2021 period. Apparent demand exceeded production by 42.7 kt. That compared to an admittedly Covid-pandemic-hit 2020 surplus of 92.7 kt.
Futures exchange spreads and stock levels have supported the tight market picture. The cash to 3-month LME price has been flirting with backwardation indicating supply tightness. Stock levels are falling from the April peak. Futures exchange activity is also giving us clear direction on what is driving nickel demand. The overall bias is strongly bullish and dip-buying could be considered.
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