Base Metals Dashboard - Week Ending October 4, 2024

Aluminum

Industrial metals rose as investors evaluated the impact of Chinese stimulus measures and strong U.S. jobs data on demand. While Chinese attendees at LME Week expressed optimism about the outlook, Western participants remained more cautious, citing uncertainties around the strength of Beijing’s efforts and long-term growth potential. Analysts at Capital Economics noted that a significant demand surge would require extensive fiscal support, which hasn’t been detailed yet, and even increased support would not prevent a decline in construction activity by the end of the decade, potentially weighing on metals prices. (Bloomberg)

The aluminum market is experiencing heightened pressure as October delivery contracts on the London Metal Exchange (LME) trade at a rising premium over November, reflecting a mounting squeeze. Traders facing lengthy withdrawal queues from LME warehouses are struggling with higher costs to re-register metal, following a controversial administrative fee hike by warehouse owner Istim Metals LLC. The situation is further complicated by a large long position in October contracts held by Trafigura Group, the same trader that originally deposited the metal in Istim’s warehouses. The tension has led to complaints from traders to the LME and the UK financial regulator, with the October-November spread hitting a $22 premium on Tuesday amid ongoing concerns. (Bloomberg)
A single entity held over 40% of the open positions in the LME’s October aluminum contract as of September 30, up from 30-39% the previous day, causing the October-November spread to spike above $20/ton. The large position, reportedly held by Trafigura, has intensified market scrutiny as traders claim the spread’s volatility is exacerbated by a warehousing company's increased handling fee for re-registering metal back into LME depots. The contract is set to expire in two weeks, and the situation highlights growing tension in the aluminum market. (Bloomberg)

Copper

Copper pared back recent gains driven by China’s stimulus measures and stronger-than-expected U.S. jobs data, reflecting some cooling enthusiasm among investors. The metal initially rose to a multimonth high as Chinese authorities ramped up efforts to revive growth, but a nearly 5% drop in Hong Kong-listed Chinese stocks—following a 13-day rally—signaled waning optimism. With mainland markets closed for a weeklong holiday, lower trading volumes further weighed on metals. Investors are closely monitoring whether the latest policy shifts, such as easing home-buying restrictions, will rejuvenate China’s struggling property sector, a key demand driver for metals.(Bloomberg)
Chile’s copper production is showing signs of recovery, posting its highest monthly output of 2024 in August with a 7.1% year-over-year increase, as the country rebounds from a series of operational disruptions and project delays that previously drove production to a 20-year low. The surge, which marks the largest haul since December, is being driven by improved operations at state-owned Codelco and BHP’s Escondida mine, which is accessing richer ore, as well as the ramp-up of the revamped Quebrada Blanca mine. This rebound is a positive development for the global copper market, which has been experiencing tightness in concentrate supply. (Bloomberg)
Copper smelters are sounding alarms over possible plant shutdowns as processing fees are anticipated to plunge during annual negotiations with key miners. Increased competition from new smelter investments in China and elsewhere has left smelters struggling to secure sufficient ore, with executives indicating that the upcoming negotiations could be particularly challenging. The processing fees, which are critical for smelter profitability, may decline to levels that jeopardize their operations, reshaping the global refined copper supply landscape. Current market dynamics have led to negative processing fees, a rare occurrence, and analysts predict a substantial gap between concentrate demand and supply, necessitating potential production cuts or plant closures if fees remain too low.(Bloomberg)

Other Important LME and CME Metals & Markets

Iron ore prices found support as Shanghai, Guangzhou, and Shenzhen, three of China’s largest cities, eased home-buying restrictions to support the struggling property sector. The measures, which include lower downpayment ratios and mortgage refinancing options, are part of Beijing’s broader efforts to stimulate the economy and revive demand for steel and construction materials. This boosted futures prices in Singapore and lifted base metals like copper and zinc at the start of LME Week in London. After a prolonged slump, the Chinese property market’s rebound is revitalizing iron ore, one of this year’s worst-performing commodities, as demand outlooks improve amid a traditionally strong season for steel products. While production remains abundant from major exporters in Brazil and Australia, traders are optimistic that China’s recent policy shift will continue to support prices and maintain bullish momentum. (Bloomberg)
US Steel’s CEO David Burritt faces scrutiny from Democratic Senators Elizabeth Warren and Sherrod Brown over a potential $72 million payout tied to the proposed $14.1 billion acquisition by Nippon Steel Corp. The senators criticized the payout as a conflict of interest that could influence Burritt’s support for the foreign takeover over domestic alternatives, raising concerns about its impact on US Steel workers and national security. Despite strong opposition from President Joe Biden, Vice President Kamala Harris, and former President Donald Trump, the deal's review has been extended, likely delaying any decision until after the November presidential election. (Bloomberg)
Gold fluctuated as traders weighed the impact of Middle East tensions and a stronger-than-expected U.S. jobs report, which reduced expectations for a large interest-rate cut by the Federal Reserve in November. Israeli airstrikes in Lebanon and U.S. and UK operations in Yemen added to geopolitical uncertainty, driving haven demand for gold. Despite an initial 0.9% drop following a surge in U.S. nonfarm payrolls, gold rebounded, while silver reached its highest since 2012. The strong jobs data prompted Wall Street banks to predict a smaller rate cut at the next Fed meeting. 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 $2,653/mt, up $6.50/mt on the week.

Aluminum prices were up 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 19.6¢/lb this week.

The CME Midwest Premium market is now in a contango from the October‘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 $9,943/mt, down $39/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 $17,992/mt, up $996/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.