The base metal market is experiencing notable developments as inventories in LME (London Metal Exchange) warehouses rise due to deliveries associated with expiring monthly futures contracts. This article explores the recent trends in base metal inventories, the influence of US bond yields, and the specific dynamics of key metals like copper, lead, aluminium, nickel, zinc, and tin.

Base Metal Inventory Trends

In recent trading sessions, base metal inventories in LME warehouses have seen upward movement. Except zinc, stocks of all base metals have increased. Traders anticipate further deliveries as the week progresses, contributing to ongoing changes in inventory levels.

Impact of US Bond Yields

The surge in US bond yields to multi-year highs has caught the attention of market participants. This increase is closely linked to rising oil prices and the resulting inflation outlook. While expectations for the US Federal Reserve’s interest rate decision suggest no immediate rate hike, signals of a hawkish stance are expected. The growing deficit, combined with elevated oil prices, is a key factor shaping the bond market. Notably, 10-year yields have reached 4.40%, a level not seen since 2007, contributing to the strengthening of the US Dollar.

Current Developments In The Metals Market

Copper’s Inventory Surge: Copper, a vital industrial metal, has witnessed a notable increase in available stocks at LME warehouses. The addition of 4,000 metric tons in Europe and 300 metric tons in Taiwan has led to a two-year high in inventory levels. This surge has had a significant impact on the Cash-3m spreads, which reached $62 contango, the second-highest this year (surpassed only by $76c in May 2023). As 3-month prices dipped below $8,400 in late evening trading, market watchers are closely monitoring inventory inflows, as further increases could exert downward pressure on prices.
Lead Stocks and Arbitrage Opportunities: Lead stocks have reached levels not seen since June 2021. A substantial quantity of 6,875 metric tons arrived in Asian warehouses of LME, driven by a favourable arbitrage opportunity resulting from a notable gap between LME futures and physical prices. Additionally, Indian Lead brands are expected to arrive in warehouses in the coming days, which may impact Cash-3m spreads and potentially lead to price declines.
Aluminium Market Dynamics: Aluminium’s performance has been influenced by consumer buying and minimal inventory inflows. Traders are aware that a significant portion of metal stocks remains outside the reported system, awaiting warranting. Currently, the metal is trading in the range of $2,190 to $2,230.
Nickel’s Influx and Key Support Levels: Nickel stocks have experienced substantial inflows in recent weeks, primarily driven by newly registered Chinese brands entering LME warehouses. As a result, metal stocks have reached a five-month high in LME warehouses. The metal faces a key support level at $19,750, and a further push lower could open the door to levels between $18,000 and $18,500.
Zinc’s Resilience and Low Inventory: Zinc prices have maintained their position above $2,500, with withdrawal requests at LME warehouses surprising bearish expectations. No inventory inflows were reported recently, and only 75,325 metric tons of zinc are available in LME warehouses, the lowest since mid-August. Without visible zinc inventories, bears may need to exercise patience, although strong resistance remains in the $2,580-$2,590 range according to technical charts.
Tin Stocks and Chinese Demand: Tin stocks have reached their highest level since April 2020 in LME warehouses. Despite a relatively quiet physical market for tin, demand in China has shown signs of recovery in recent weeks. SHFE (Shanghai Futures Exchange) warehouse stocks decreased by 458 metric tons last week, contributing to lifting prices above the key resistance level of $26,000 in LME. Traders are closely monitoring SHFE inventory reports gauging Chinese demand dynamics.

OFB’s Insight

The base metal market is characterized by shifting inventory levels, influenced by deliveries in LME warehouses. Additionally, factors such as US bond yields, individual metal dynamics, and global demand trends play pivotal roles in shaping the market’s landscape. As the base metal sector continues to evolve, market participants remain vigilant, closely monitoring inventory fluctuations and external factors.