Metals
Growing headwinds saw industrial metals sold off on Friday along with other risk assets. The USDCNH also saw its largest rally since March 2020 on Friday which reinforced the bearish outlook for China’s demand with a weaker yuan hurting purchasing power.
While most base metals fell on Friday, zinc managed to close almost flat as the metal is still on high alert and risks facing a squeeze. On-warrant stocks for zinc fell by 11.3kt on Friday (a third straight day of declines) to 34kt (lowest since November 2019). The majority of the drawdown came from warehouses in Singapore and Malaysia. Total exchange inventories for zinc have fallen for 21 consecutive days now with overall stocks standing at 103.3kt – the lowest level since June 2020.
On the Covid front, little progress has been made in Shanghai in terms of lockdowns of residents although there are reports of reduced restrictions in logistics in the surrounding provinces. However, cases are still rising elsewhere, such as in the capital city, Beijing, which saw rising infections over the weekend. Authorities are on high alert and residents have rushed to stockpile food and daily necessities. The Covid containment measures in China have started to show their impact in the latest survey data. According to Shanghai Metals Market (SMM), operating rates of major aluminium semi fabricators fell by 3.3% to 64.5% (lowest in almost two months) last week. The decline came from reduced orders due to Covid-related lockdowns in eastern China, whilst raw materials supply also remained disrupted.
Lastly, the latest CFTC data shows that speculators cut their net long position in COMEX copper, selling 3,293 lots over the last reporting week, and leaving them with a net long of 25,393 lots as of last Tuesday. As for precious metals, speculators trimmed their net longs in COMEX gold by 19,697, to leave them with a net long of 124,967 lots.
