Base Metals Index Repeats Worst Weekly Rout Of The Year
The base metals index of the London Metal Exchange repeated its worst weekly rout this year.
The index declined for five weeks in a row, equaling its longest losing streak since March this year. The gauge comprising six metals that has dropped over 12 percent so far this year hasn’t had a five-week losing streak since 2015.
All but one metal, nickel, declined this year, with zinc — that saw a 20 percent drop — being the worst-hit. Nickel was also the best performer, gaining 10 percent in the same period.
Long positions are witnessing liquidation and fresh selling has emerged in anticipation of rising trade tension, said Robin Bhar, head of metals research at Societe Generale, in a recent research report. He has a risk-off view on metals along with a neutral rating for the base metals. A full-blown trade war only has a 20 percent likelihood, he said, adding: “A potential trade war would be painful and have negative implications for metals.”
Andy Blamey, associate editorial director of EMEA Nonferrous Metals & Analytics at S&P Global Platts shares his outlook on the base metals with BloombergQuint:
Copper is the most “China-sensitive” of the major base metals and therefore the most prone to negative sentiment due to the escalating US-China trade dispute. Supportive factors for copper include ongoing and forthcoming labor talks at many major mining operations, with the potential for supply disruptions as a result. Copper and zinc have seen significant short positions build in the futures market as speculative players bet against the market in the near term.
Aluminum prices spiked earlier in the year due to the U.S.’ imposition of import tariffs and sanctions.
The metal made strong gains in recent months, driven by expectations of a surge in the demand for nickel units in electric-vehicle batteries. While analysts agree EV demand will be a game-changer, the gains for now are more potential than actual, with the stainless-steel industry remaining by far the largest end-use sector. Macroeconomic jitters that have affected base metals have prompted some long liquidation in nickel, driving prices lower.