Written Commentary
BASE METALS
Copper: Copper prices moved lower to start the new month ahead of US ISM manufacturing data out later in the morning, which is expected to show growth in the sector alongside a rise in price pressures. Benchmark three-month copper on the LME was down 0.2% at $12,965. China’s manufacturing data on Thursday was friendly to prices, showing that the sector expanded in April at its fastest pace since the end of 2020 thanks to surging new orders. Meanwhile falling copper stocks on the SFHE, down 4.6% from last week to 192,025 tons, point to stronger demand inside China in comparison to LME and COMEX warehouses. Refined copper demand in China is now forecast to grow by 2.8% this year, driven by ongoing grid investment and tighter scrap availability. The SHFE is closed today for the Labor Day holiday and will not reopen until May 6. Overall, Chinese manufacturers grew more optimistic about the year-ahead outlook, with sentiment improving from March and running above the average of the past two years. Analysts are not expecting any near-term measures of high-profile monetary easing from the PBOC.
Zinc: Zinc slipped 0.6% to $3,342.
Aluminum: Aluminum rose 1.4% to $3,522. Fears of supply shortages have been reinforced as the standoff between the US and Iran continued, constricting shipments from the Gulf region, home to large smelters. Emirates Global Aluminum said fully restoring primary aluminum production at its Al Taweelah smelter that was hit by an Iranian attack could take up to a year. The premium of the LME cash contract to the three-month future rose 7% to $60 a ton on Friday, having more than doubled since April 17, indicating worries about short-term supply.
Tin: Tin gained 0.2% to $49,300.
Lead: Lead was little changed at $1,955.
Nickel: Nickel fell 0.5% to $19,380. French miner Eramet said it was planning to halt production at its Weda Bay nickel mine in Indonesia next month. Additionally, fears over sulphuric acid shortages have hit local producers in the country, who have warned that a new ore pricing formula will increase production costs significantly.
PRECIOUS METALS
Gold: June COMEX contracts are down 0.6% to $4,601. Gold is heading for a weekly loss as elevated oil prices lead market participants to shift Fed rate expectations modestly to the hawkish side. Gold is likely to remain negatively correlated to oil in the short term. Market participants are signaling they are expecting inflation to stay elevated in the near-term and prevent any sort of downward policy-action from the Fed as evident in one- and two-year inflation swaps. Brent crude above $100, stalled peace talks, and persistent uncertainty on the Strait of Hormuz are likely to prevent cap gold’s upside until inflation risks ease.
Wednesday’s policy statement showed three members voted to remove the easing bias language in the monetary policy statement, a signal that there is growing worry on the board over the rise in inflation and a potential hurdle to future policy-easing this year. Still, longer-term inflation expectations have only shown a mild increase. TIPS markets show the 5-year breakeven at 2.67%, the 10-year breakeven at 2.46%, and the 5y5y forward rate is at 2.25%. With the 5y5y forward stable at 2.25%, well below the 2.5% de-anchoring threshold and actually slightly off its mid-week peak, the Fed retains optionality to treat the near-term CPI/PCE acceleration as transitory, underscoring the FOMC’s hawkish hold while not forcing a more aggressive pivot. Despite firmer near-term inflation pressures, we maintain our view that the Fed will deliver a rate cut later this year, most likely in the fall.
Silver: Silver futures are 1.6% higher to $74.75.
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