LME Commentary

 

Three-month copper futures on the LME benchmark were up 0.3% at $9,006.5 a tonne at 1615 GMT on Tuesday.

 

Copper, widely used in the power and construction industries, reached an all-time high of $10,845 in early March. It then fell all the way under the pressure of Fed rate hikes and weak demand in China, hitting a seven-month low of $8,938 on May 12, as the Fed's aggressive rate hikes increased the risk of a global recession. Copper is seen as a barometer of economic activity. Copper prices are still around 17% below their historical peaks.

 

A possible strike by miners in Chile, the world's top copper producer, and a drop in copper inventories on exchanges supported copper prices, analysts said. However, the prospect of a potential global recession limited copper's gains.

 

Workers at Chile's state-owned Codelco will start a nationwide strike on Wednesday to protest the government and the company's closure of the Ventanas smelter, a union official said.

 

India's Vedanta on Monday announced plans to sell a copper smelter complex in the southern state of Tamil Nadu.

 

At LME-registered warehouses, copper inventories stood at 117,025 tonnes, down 35% since mid-May.

 

A weaker U.S. dollar index on Tuesday also supported metals prices, making dollar-denominated commodities cheaper for buyers of other currencies.

 

LME zinc rose sharply on Tuesday, with three-month zinc closing at $3,581.50 a tonne, up 1.8%. It rose as much as 3.2% in early trade on concerns about potential supply shortages due to falling inventories, while high energy prices in Europe could also reduce smelter output.

 

Zinc fell to a one-month low on Monday. Zinc has fallen along with other industrial metals over the past two months on concerns that a Fed rate hike could slow global growth or even sink into recession, hitting demand for the metal.

 

The Fed last week raised its benchmark interest rate by 75 basis points, the largest rate hike since 1994.

 

Analyst Tom Mulguin said that while the prospect of slowing demand and weakening economic activity is bearish on sentiment, some of these industrial metals are facing a fairly severe supply crunch. This is also reflected in lower zinc inventories, shortages in the U.S. and Europe, and an expected supply-demand gap this year.

 

Owners of more than 18,000 tonnes of zinc in delivery warehouses in Malaysia will cancel warehouse receipts, reducing available stocks by 30%, LME data showed on Tuesday.

 

Media reports in April said commodities trader Trafigura and others would be pulling large zinc inventories from LME warehouses in Asia. At the time, Trafigura planned to ship zinc stocks from Asia to Europe to make up for lost zinc production at Belgian Nyrstar, in which the company holds a majority stake.

 

In Europe, spot zinc premiums surged as European electricity prices hit a three-month high on Tuesday, causing zinc smelters to cut back on operations. The premium for LME spot zinc over three-month zinc also rose to $111 a tonne, the highest premium since November last year and well above $14.30 a week earlier, reflecting the LME’s recent stock shortage.

 

In Indonesia, a major tin exporter, officials said the country plans to raise royalties on tin producers and introduce a progressive tax structure linked to international prices.

 

In other metals, LME aluminium was up 0.1% at $2,530 a tonne, nickel was up 1% at $26,000 a tonne, tin was up 0.6% at $30,995 a tonne and lead was down 0.2% at $30,995 a tonne $2,065. (over)