LME Aluminum and Copper prices are plunging amid the escalation of U.S-China trade wars, and the prices of both the base metals are falling on the exchange. However, investors need to keep in mind that the fundamentals behind both the metals seem to be pulling the strings as well.
The prices dropped from the level of US$1820.50 (Day’s high on 10th May 2019) to the level of US$1795.75 (Day’s Low on 10th May 2019) amid backwardation of future contract on the Shanghai Futures Exchange (SHFE). The current SHFE 1905 (May Contract) traded higher than 1906 (June) contract amid market speculation of weakness in the global economy and looming global outlook ahead.
However, the prices recovered during the day’s session from the level of US$1795.75 to the current high of US$1815.50 (as on 13th May 2019, GMT-4 6:46 AM) due to lower inventories across the London Stock Exchange (LME) registered warehouses. Another factor which supported the aluminum prices in the global market was the market estimation of minimal impact from the U.S-China trade war on the Aluminum export of China.
The overall expectation of a slowdown in global economic conditions led to the speculation in the market, and the prices dropped from the previous high of US$1820.50 to currently hovering around US$1804.25 (as on 13th May 2019, GMT-4 7:52 AM). However, the drop in prices received a cushion from high demand and constrained supply of primary aluminum along with hopes of another round of trade talks. As per the data, the primary aluminum inventory dropped by 36,000 metric tonnes (as on 13th May 2019) and stood at 1.373 million metric tonnes.
Copper prices plunged from the level of US$6193.75 (Day’s high on 10th May 2019) to the present low of US$6067.50 (as on 13th May 2019 GMT-4 6:5 AM) amid sharp build up in stockpiles across LME registered warehouses. As per the data, the copper inventory across the warehouses from March till now grew by almost 80,000 tonnes, which in turn exerted pressure on copper prices.
On the demand side, the re-escalation of bilateral disagreement between the United States and China is reducing the demand for base metals as the market is expecting the besieged relationship between the two significant economies of the globe to hamper the global economic conditions.
However, the prices are still moving in a contango structure and the spot prices are lower than the future prices, which in turn, signifies that the rise in inventory still did not enter the over-supply zone.
The fall in demand can be interpreted from the operating rate of copper enterprises. As per the data, the average operating rate of copper enterprises stood at 77.8%, which in turn, marked a decline of 3% as compared to the same period in the year 2018.
A decline in demand and a slow build-up of inventory across LME registered warehouses exerted pressure on copper prices.
Apart from an increase in inventory and decline in demand, the global data is also exerting pressure on copper prices. The Eurozone Manufacturing PMI stood at 47.8 in April 2019, below the mean value of 50, which in turn, signified a slowdown in manufacturing activities in Europe and in a cascade exerted pressure on copper prices.
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