LIVE FUTURES REPORT 22/10: LME zinc-lead complex outperforms in continued uptrend

The three-month zinc price on the London Metal Exchange was higher during morning trading on Tuesday October 22, with the metal continuing its approach toward $2,500 per tonne, while lead futures were also up.

Zinc’s outright price on the LME was recently seen at $2,480 per tonne, while just over 2,000 lots were exchanged as at 9.15am London time.

Price action in the galvanizing metal was boosted by a fresh cancelation of some 4,900 tonnes out of LME-registered warehouses in Europe, Asia and North America. LME on-warrant zinc stocks now sit at 35,600 tonnes.

Similarly, after closing at a 15-month high on Monday, lead’s three-month price held firmly above the $2,200-per-tonne support level over the morning, trading just over 1,000 lots.

As a result, the zinc-lead price differential, or switch, is now at just $260 per tonne. The switch reached just under $1,000 per tonne back in April.

Despite the upward trend in both prices however, forward spread in zinc and lead remain less supportive of spot business - both trading in sizeable backwardations.

Zinc’s benchmark cash/three-month spread was recently seen in a backwardation of $31 per tonne, while lead’s cash price is now showing a $21.50-per-tonne premium against its three-month price.

“It seems as if the markets are not prepared to make any substantive long-term moves until the meeting between Presidents Trump and Xi early next month and there is an actual trade deal signed off,” Kingdom Futures director and chief executive Malcolm Freeman said in a morning note.

“For the moment it seems to be a case of stand back and wait with most of the volumes and indeed volatility supplied by algorithms and commodity trading advisors,” he added.

Elsewhere in the complex, despite a fresh cancelation of some 12,336 tonnes this morning, the three-month nickel price continues to consolidate just above $16,000 per tonne.

Fresh removals were booked out of mixed locations this morning, with some 4,536 tonnes freshly canceled out of Rotterdam, 2,766 tonnes out of Johor, 1,650 tonnes out of Kaohsiung and 1,476 tonnes out of Singapore.

This leaves LME on-warrant nickel material at its lowest level in over a decade at just 29,130 tonnes, while nickel’s forward spreads have narrowed significantly, with its cash/three-month spread recently flipping into a $20-per-tonne contango, from a backwardation of $73 per tonne last week.

Other highlights
  • The dollar index was higher over the morning, climbing by 0.08% to 97.39.
  • In other commodities, Brent crude oil futures were up by 0.25% over the morning, climbing to $59.18 per barrel.
  • In European data on Monday, the German producer price index (PPI) reading on a month-on-month basis for the September-October period topped expectations with a 0.1% climb, up from a 0.5% decline in the previous reading.
  • In data on Tuesday, CBI industrial order expectations from the United Kingdom as well as existing home sales and the Richmond manufacturing index from the United States are of note.

Hassan Butt

hassan.butt@fastmarkets.com

Published

Hassan Butt

October 22, 2019

10:13 GMT

London