MORNING VIEW: Base metal prices strong as energy shortages threaten supply

Base metals prices on the London Metal Exchange and Shanghai Futures Exchange were generally up strongly this morning, Monday October 18, with energy shortages and high energy prices continuing to affect supply. The market seems to be ignoring, for now, the weaker economic data out of China.

  • China’s gross domestic product climbed 4.9% in the third quarter, down from 7.9% in the second quarter.
  • Automotive sales down in China and European Union by 19.4% and 23.1% respectively in September.
  • Brent crude oil price reaches $86 per barrel.

Base metals
LME three-month base metals prices were for the most part stronger this morning. The exception was tin that was down by 0.2% at $37,325 per tonne, while the rest of the complex was up by an average of 1%, led by a 1.3% rise in copper to $10,343 per tonne.

The most-active base metals contracts on the Shanghai Futures Exchange were stronger across the board on Monday, with gains averaging 3.7%, with power rationing in China hitting both production and manufacturing.

Precious metals

Spot gold was down by 0.1% at $1,765.75 per oz this morning. Silver was flat at $23.31 per oz, platinum was up by 0.4% at $1,060 per oz and palladium was up by 0.1% at $2,076.60 per oz. The weakness in gold last Friday, once again caused by the rising treasury yields.

Wider markets
The yield on US 10-year treasuries has climbed, it was recently at 1.61%, up from 1.53% at a similar time on Friday.

Asia-Pacific equities were mixed on Monday morning: the Nikkei (-0.15%), the Hang Seng (-0.43%), CSI 300 (-1.16%), the Kospi (-0.28%) and the ASX 200 (+0.26%).

The US Dollar Index has edged higher to 94.06, up from 93.92 on Friday.

The other major currencies were mixed: sterling (1.3737), the euro (1.1587), the Australian dollar (0.7398) and the Japanese yen (114.27).

Key data
Other key data already out on Monday showed China’s retail sales climbed by 4.4% year on year in September, up from the 2.5% gain in August; fixed asset investment rose by 7.3% in the year-to-September, compared with an 8.9% gain in the year-to-August; industrial production climbed 3.1% in September, after a 5.3% in August; and China’s unemployment rate dropped to 4.9% in September, from 5.1% in August.

Other key data out later today includes US data on industrial production, capacity utilization, housing market index, the Federal budget balance and treasury international capital (TIC) data on long-term purchases.

In addition, US Federal Open Market Committee member Randal Quarles and UK Monetary Policy Committee member Jon Cunliffe are scheduled to speak.

Monday’s key themes and views
Zinc’s near vertical climb over the past week highlights the shock the market is suffering while high energy costs are threatening production levels, which coincides with power rationing in China that has also affected production. The rallies are themselves causing short-covering which is further fueling the rallies. The combination of high prices and supply chain disruptions are making for an extremely difficult manufacturing environment - will this affect the broader market and lead to some follow-through weakness in the metals?

Gold’s recent rally back to $1,800 per oz has been short-lived and it appears the stronger treasury yields and strength in other markets have provided alternative investment opportunities, but given rising commodity prices, inflationary pressures and stressed markets, gold may well pick up again.

William Adams


William Adams

October 18, 2021

09:02 GMT