PMI Woes Affect Global Commodity Complex

The recent market scenario has seen a dip in oil, gold, and base metals, partially attributed to the perceived containment of geopolitical tensions. Additionally, industrial survey data for October 2023 points towards a continued or worsened sluggishness in the manufacturing sector. Let’s dive deep into the details:

Global Manufacturing Trends

The flash manufacturing PMI for October depicted a 6-month low in Australia at 48, with Japan experiencing a deeper contraction at 47.6. Germany, France, and the UK remained in contraction, recording figures of 40.7, 42.6, and 45.2, respectively.

 Service Sector Deterioration & Currency Impact

Similarly, the service sector PMI indicated a weakening demand, reflected in figures from Australia (47.6), Japan (51.1), France (46.1), Germany (48), and the Eurozone (47.8). The consequent poor European reading led to a weakening Euro and a subsequent strengthening of the US Dollar.

Base Metals & Dollar’s Performance

The US Dollar’s strengthening was supported by a cautious rise in US yields, with the USD Index hovering between 105.50-106.00. While Copper struggled to maintain its upward momentum, Nickel hit a 2-year low below $18,000 due to growing surplus concerns. On the other hand, Lead witnessed a temporary spike due to limited short covering caused by nearby spread tightness.

Metals Resilience Amidst Volatility

Despite initial downward trends, metals managed to recover losses due to active dip-buying. Both buyers and sellers exercised caution, resulting in a balanced stance on base metals trading, thereby preventing significant price shifts.

Warehouse Reports & Market Predictions

The London Metal Exchange (LME) indicated a continuous increase in Copper and Lead inventories, with Copper witnessing a rise of 1000 tons and Lead’s stocks reaching a 30-month high after a 1950 tons surge. Observations suggest the possibility of further inventory arrivals for Lead in the upcoming weeks, given the metal’s Cash-3m spread at $60-80b.

Product-wise Market Outlook

Considering the current market dynamics, base metals find themselves in a bear market, with prices consolidating after a sell-off period. While the current phase entails a temporary adjustment, a subsequent trend extension is anticipated once positions stabilise.

• Copper: Expected to maintain an intermediate floor around $7850, with potential attempts to reach $8000-8200 unless prices break below $7850 by the week’s end.
• Aluminium: Chart indications suggest vulnerability, with the metal finding initial support in the $2100-2150 range.
• Zinc: Visible inventory reductions have slowed the downtrend, keeping prices rangebound just above $2400.
• Lead: Erratic movements driven by position adjustments provide a potential selling opportunity, with a projected decline to $1950-1980.
• Nickel: With prices already hitting a 2-year low, a further decline towards the $17,000-17,500 target is anticipated.
• Tin: Stabilizing near $25,000-25,500 due to declining available stocks, although a long-term perspective suggests the likelihood of a lower low in the following months.

The overall market sentiment appears cautious, with a focus on potential trends and key support levels across various base metals. Despite short-term fluctuations, the broader picture suggests a continued trajectory. 

OFB’s Insight 

The recent market fluctuations, triggered by a mix of geopolitical and economic factors, have induced volatility within the commodity complex. Despite the temporary decline, the robustness of certain base metals reflects a positive outlook.