Base Metals Dashboard - Week Ending August 30, 2024

Aluminum

Aluminum prices fell from a two-month high as inventories rose in China, the world’s largest market, signaling weak demand amid the country's economic challenges. Despite a nearly 10% gain in August, driven by a weakening US dollar and anticipation of Federal Reserve rate cuts, aluminum stockpiles in China have reached their highest level for this time of year since 2019, with a 0.5% increase to 807,000 tons. This rise halted a prior decline in inventories, pushing prices down 1.7% on the LME. Broader declines in industrial metals were observed as Chinese demand struggled due to a property market slowdown and weak economic confidence. Expectations remain for demand to pick up as manufacturing activity increases in the coming months. (Bloomberg)

Meanwhile, market participants are closely watching potential responses from the LME to complaints about sharp fee hikes at a major warehouse operator, which some traders believe are distorting the global aluminum market.

Copper

The U.S. is continuing its efforts to counter China’s influence in Africa by supporting infrastructure projects, including the Lobito corridor railway connecting copper and cobalt mines in the Democratic Republic of Congo to an Atlantic port in Angola. The Biden administration, as part of the Group of Seven's infrastructure plan, has advanced this project, with $553 million approved for funding. Concerns have emerged over whether a potential Trump administration would maintain this effort, but officials emphasize that existing commitments are moving forward. The U.S. also aims to enhance regional connectivity, though the integration of the Lobito corridor with other African railways remains uncertain.(Bloomberg)
Jiangxi Copper, China's largest refined copper producer, expects the global copper ore shortage to persist into the second half of the year, maintaining downward pressure on processing fees. The company highlights that Chinese smelters, which produce over half of the world’s refined copper supply, are facing rising certainty of prolonged mine supply constraints as processing capacity outstrips ore availability. This has driven processing fees to near or below zero since April. Despite higher copper prices boosting its first-half net income, the company anticipates that the tight ore supply and low fees will remain challenges in the coming months, affecting the broader industry outlook.(Bloomberg)

Other Important LME and CME Metals & Markets

China's steel industry is expected to face worsening challenges as both BHP Group, the world's largest miner, and China Baowu Group, the top iron ore buyer, express concerns over declining demand. The slowdown, driven by a prolonged property crisis and weakening economic conditions, has already led to a more than 10% drop in steel demand since 2020, marking an end to a decades-long boom. Benchmark steel prices have plunged to multi-year lows, with Chinese mills struggling amid oversupply, high costs, and fierce competition. BHP maintains that China’s steel production has plateaued above 1 billion tons and expects this trend to continue into the mid-2020s. As a result, BHP is shifting focus towards copper, anticipating increased demand due to the energy transition. Despite relatively stable profits in the first half, both BHP and Baosteel are bracing for further difficulties, particularly for smaller, higher-cost producers who are likely to bear the brunt of the downturn. (Bloomberg)
Iron ore prices have surged by 10% in ten days, surpassing $100/st, despite weak fundamentals, prompting warnings from China’s metals industry journal, which labeled the rally as "irrational." The rise has exacerbated pressure on China’s struggling steelmakers, who face challenging conditions amid oversupply, weak demand, and high inventories. Major industry players like BHP Group and China Baowu Steel have expressed concerns, with BHP noting the ongoing transition in China’s steel industry. Iron ore futures continue to climb, heading for their highest close since early August. (Bloomberg)
Gold prices dipped on Friday, reducing the month's gains as rising Treasury yields and a stronger dollar followed a key US inflation report that suggested a measured pace of Federal Reserve rate cuts. Despite this dip, gold remains on track for a monthly gain of over 2%, continuing its upward trend driven by optimism over potential rate cuts, which would benefit non-interest-bearing assets like gold. The metal's 20% rise this year is also supported by robust over-the-counter purchases and strong haven demand amid geopolitical conflicts. However, TD Securities warns of potential near-term downside risks due to extreme positioning by macro funds. If you have exposure to the gold market and are concerned about increasing prices, please reach out to AEGIS for strategies.

LME Aluminum

LME Aluminum 3M settled at $2,447/mt, down $95/mt on the week.

Aluminum prices were down this week. The futures forward curve remains in a contango, meaning nearby prices are lower than forward prices. Aluminum consumers concerned about increasing prices might consider hedging future needs by buying swaps or call options. Depending on risk tolerance, end-users might consider strategies that use only swaps or options or a combination of both. The aluminum market has sufficient liquidity to use swaps and options. Please get in touch with AEGIS for specific strategies that fit your operations.

Midwest Premium

Prompt month CME MWP last traded/settled at 18.8¢/lb this week.

The CME Midwest Premium market is now in a contango from the September‘24 contract on forward. The CME Midwest Premium swap market is thinly traded, with no options market. Hedging in this thinly traded market is challenging, so we recommend using limit orders. Please get in touch with AEGIS for specific strategies that fit your operations.

* Please note all these charts are for desktop only. *

LME Copper

LME Copper 3M settled at $9,235/mt, down $53.50/mt on the week.

Compared to last Friday, LME Copper's forward curve has shifted vertically lower and is in contango throughout 2024 and early 2025. The copper market has sufficient liquidity to use swaps and options. Depending on their risk tolerance, consumers might consider strategies that use only swaps, options, or a combination of both. Please get in touch with AEGIS for specific strategies that fit your operations.

LME Nickel

LME Nickel 3M settled at $16,766/mt, up $8/mt on the week.

As prices were up this week, nickel’s forward curve also modestly shifted higher. It remains in a steep contango, meaning that nearby prices are lower than futures prices. The nickel market has sufficient liquidity to use swaps and options. Depending upon your risk tolerance, consumers might consider strategies that use only swaps or options or a combination of both. Please get in touch with AEGIS for specific strategies that fit your operations.