(Bloomberg) – Industrial metals softened after a robust opening to August, as investors assessed possible downside risks even as supply tensions continued to offer some support.
Most of the six main contracts on the London Metal Exchange headed lower on Friday as sentiment took a cautious turn. Aluminum is set for its first weekly loss in six, copper edged down after closing at a record on Monday, and zinc stalled following a push to a four-year high. The LMEX Index — a gauge of the main contracts — has risen about 14% this year, touching a record in June on a range of supply-side dislocations. Among them, copper inventories on the LME have shrunk as metal is shipped to the US in anticipation of tariffs. That’s helped to lift the backwardation on its key cash-to-three month spread to the widest in more than a year. But traders are looking for more signs that physical demand, particularly in China, will be sustained.
“We expect metals to remain buoyed by supply-side tailwinds, although the demand outlook is currently shaping a mixed picture,” BMI, a Fitch Solutions company, said in a note. “Elevated risks to the global economy might work to the detriment of the complex.”
A key risk lies in China, which will unveil the latest broad data on industrial activity and growth on Monday. While parts of the world’s second-biggest economy are booming — including high-tech sectors that are important for metals consumption — others remain in the doldrums, especially those keyed to construction.
Premiums on copper imports into China have dropped back below $100 a ton in a possible sign that buyers there are balking at LME prices above $14,000 a ton. Competition between the US and China for metal had pushed up prices through July and August.
Aluminum has taken some relief from an announcement earlier this week from a major Middle East producer that one of its plants could make full recovery by the first quarter of next year. That follows damage sustained in a missile attack early in the US-Iran war.
Demand, meanwhile, may not be a powerful driver. Chaos Ternary Futures Co, a Chinese brokerage, said the global aluminum market was headed for a return to surplus next year.
Traditional domestic demand in China for the lightweight metal is not growing, Chaos analysts wrote in a note on Thursday, with real-estate consumption continuing to decline and household appliance output barely higher on-year. Even usage driven by the renewables sector was slowing and could contract, they said.
