The base metals market experienced a notable rebound on 20 September, except nickel. Zinc and aluminium were leading this resurgence driven by declining LME inventories and the absence of third Wednesday inflows. Aluminium approached its resistance zone at $2250-60, while zinc surged back above $2500.

Key Highlights

Copper’s Position: It witnessed a rise as traders unwound their positions ahead of the US Fed meeting’s outcome. The metal had seen a decline over the past three days, hovering just above its critical support at $8200. Copper’s LME inventories increased by 6100 tons to 156kt, while withdrawal requests remained nominal. Consequently, Copper’s Cash-3m spreads expanded to $55-60 contango.
Lead’s Stability: It maintained stability above $2200, displaying resilience despite a substantial 2875 tons increase in inventory inflows. The metal’s available stocks reached a 27-month high.
Nickel’s Rollercoaster: It experienced a late surge on 21st September following Indonesia’s announcement of a halt in new licence issuance for the year. This was accompanied by soaring ore prices in the country. However, today saw a reversal in the rally as fresh inflows into LME warehouses (+546 tons) impacted prices.
SHFE Forward Curve: A significant factor contributing to the halt in the decline of LME metal prices was a steep backwardation in the front end of the forward curve for all base metals on the SHFE. October 2023 SHFE contracts for all metals were trading at a substantial premium compared to their respective forward months’ prices. This was a result of crowded short positions that had front-loaded bearish sentiment. While this situation is expected to be resolved in the coming weeks and months as inventories rebuild, it may lead to sporadic bear rallies in both SHFE and LME.
Dollar’s Influence: The weakening of the US Dollar also played a role in the metals’ upward movement. The US Dollar Index saw a slight decline as Dollar bulls unwound some positions after eight consecutive weeks of gains. Currency traders exercised caution ahead of the Fed meeting’s conclusion, with expectations of a potentially hawkish stance due to rising inflation. The tone of the Fed’s statement will be closely watched.

Market Outlook

Looking ahead, the metals market’s direction may be influenced not only by inventory reports but also by the trend in the US Dollar. The rate path determined by the US Fed will play a crucial role in shaping the market. Market opinions are divided, with some anticipating one more rate hike later this year, while others expect the Fed to wait for the full impact of interest rates on growth and inflation.

OFB’s Insight

Chart-wise, metals have remained in a tight range over the past three months but are susceptible to breaking out with the right trigger. Whether the Fed becomes the catalyst for metals’ movements remains to be seen.