Written Commentary
BASE METALS
Copper: Copper prices retreated as stalled peace talks, a continued closure of the Strait, and a stronger dollar weighed on prices. Benchmark three-month copper on the LME is down 1.4% to $13,247. Meanwhile, the most-active copper contract on the SHFE was up 0.3% to $15,046, though pared gains after rising as much as 1.7% during the session. Firmer demand in China has been supportive of prices recently, but there are indications that could be waning. The premium paid over SHFE prices to buy copper in the spot market has swung to a discount of 5 yuan per ton, following a premium of 115 yuan on April 15. Broader and more sustained moves in the metals market are dependent upon clear signals from macro and geopolitical developments.
Risks to copper supply from potential sulphuric acid shortages should disruption to shipping through the Strait of Hormuz continue could offer support to prices, as long as demand remains steady. Sulphur and sulphuric acid are key inputs for solvent extraction and electrowinning, a process that accounts for 17% of global copper supply. The Democratic Republic of the Congo and Chile are the most exposed to disruptions in sulphur flows. Companies in the DRC still hold two to three months of inventory, but if supply-chain delays extend beyond late May through June, the country could curtail about 125,000 tons of production in 2026.
Zinc: Zinc dropped 0.7% to $3,447.
Aluminum: Aluminum shed 0.7% to $3,588. Concerns over Gulf supplies persist; primary aluminum production in the Gulf last month fell by 6% from February, preliminary data from the International Aluminum Institute showed on Monday, with a warning that the fall could be even steeper when final numbers are in.
Tin: Tin was down 0.1% at $50,395.
Lead: Lead dipped 0.2% to $1,960.
Nickel: Nickel gained 0.9% to $18,620. French miner Eramet said it was planning to halt production at its Weda Bay nickel mine in Indonesia next month. Additionally, fears over sulphuric acid shortages have hit local producers in the country, who have warned that a new ore pricing formula will increase production costs significantly.
PRECIOUS METALS
Gold: June COMEX contracts are little changed at $4,757, paring overnight losses as the dollar eased from session highs. Price direction in gold continues to take its cues from the oil market, keeping the risk of near-term dollar strength and elevated inflation in focus. Brent crude oil prices rose above $100 a barrel as stalled peace talks and US-Iranian restrictions on the Strait of Hormuz kept prices elevated. Broader uncertainty persists around formal negotiations between the US and Iran, likely to keep safe-haven flows supportive of the dollar.
As long as the Strait remains closed, inflation fears and safe-haven demand for dollar liquidity are likely to offer near-term headwinds for gains in gold. Markets remain hesitant over formal negotiations between the US and Iran given the recent developments and rhetoric, likely keeping traders in check and refining gold to a tighter range until there is further clarity on the geopolitical front. Gold is likely to remain rangebound, with any move above or below dependent on developments out of the Middle East. Gold has rallied on improved risk appetite, and has sold off on periods of risk-aversion, counter to traditional dynamics, suggesting that traders are more focused on Fed implications and inflationary pressures. De-escalation is likely to prove supportive for precious metals, particularly if it weighs on the dollar.
Fed easing expectations continue to remain favorable to gold prices over the longer-term, given weakness in the labor market. Longer-run inflation expectations at the time-being are also offering resistance to higher yields as the Fed should remain biased towards policy-easing given the weakness in the labor market. Still, safehaven demand for the dollar remains the largest obstacle to a gain in prices.
Silver: Silver futures are down 1.6% to $76.72.
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