The London Metal Exchange (LME) is entering the new year with the smallest available warehouse stockpiles in at least 25 years, setting the stage for future squeezes and spikes if demand turns out stronger than expected.
Available inventories of the six main metals traded on the LME plunged by two-thirds last year, with aluminum’s 72 percent decline accounting for the bulk of the drop, while zinc shrank by 90 percent.
Collectively, inventories not already marked for withdrawal hit the lowest level in data going back to 1997 on Thursday, and finished the year only fractionally higher.
Photo: REUTERS
While most of the world’s metal never sees the inside of an LME warehouse, exchange inventory levels are important because every short-seller who holds a contract to expiry must deliver physical metal registered in an LME warehouse.
The LME has introduced new rules to allow deferral to prevent future squeezes, but the exemptions come with costly fees.
The tight stockpiles also reflect a tension that has gripped metals markets for much of last year, between constrained supplies on the one hand, and worries about weakening demand due to recessionary threats in the world’s key economies on the other.
For traders on the LME, the dwindling inventories represent another in a litany of headaches following one of the most dramatic years in the exchange’s 145-year history. The LME is facing regulatory probes and lawsuits over its actions during a runaway short squeeze in the nickel market in March that pushed several LME dealers to the brink of default, and is due to soon publish the results of an independent review into the crisis.
Heading into this year, a key debate across metals markets was whether a worldwide downturn in industrial activity and rebounding supply would help replenish the industry’s threadbare reserves, while China’s rollback of COVID-19 curbs adds further uncertainty.
The debate over the outlook for metals supply and demand is particularly contentious in copper, where some analysts are predicting ongoing deficits, while others see the market swinging into a rare and historic period of oversupply.
That is feeding into a sharp divergence over the outlook for prices, with analysts at Goldman Sachs Group Inc predicting that copper would hit a record high of US$11,000 a tonne this year, while BNP Paribas said prices would drop to US$6,465 a tonne by the middle of the year as the market swings into a huge surplus.
Copper prices fell 0.5 percent to settle at US$8,372 at 5:51pm on the LME on Friday, capping the year with a 14 percent loss, the worst since 2018.
As the year drew to a close, only nickel was trading in positive territory. The market remained hamstrung by low liquidity since the crisis, with regular sharp swings.
The impact of the historic nickel squeeze has cooled trading activity in other metals as well, as investors grew concerned about a similar squeeze elsewhere.
As the LME waded through the fallout of last year’s nickel crisis, its US rival is gaining ground. Chicago-based CME Group Inc holds leading copper and precious-metals contracts, but has never managed to challenge the LME’s dominance in other industrial metals.
Last year, the US firm recorded strong growth in its aluminum contracts. Aggregate open interest in CME’s Comex aluminum futures contract was up more than 400 percent since the start of last year.
Aluminum and zinc on the LME had their worst year since 2018, with prices down 15 percent and 16 percent respectively. Tin was the worst performer — prices plunged by more than one-third and registered the biggest annual decline since at least 1990.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
ARTIFICIAL INTELLIGENCE: The chipmaker last month raised its capital spending by 28 percent for this year to NT$32 billion from a previous estimate of NT$25 billion Contract chipmaker Powerchip Semiconductor Manufacturing Corp (力積電子) yesterday launched a new 12-inch fab, tapping into advanced chip-on-wafer-on-substrate (CoWoS) packaging technology to support rising demand for artificial intelligence (AI) devices. Powerchip is to offer interposers, one of three parts in CoWoS packaging technology, with shipments scheduled for the second half of this year, Powerchip chairman Frank Huang (黃崇仁) told reporters on the sidelines of a fab inauguration ceremony in the Tongluo Science Park (銅鑼科學園區) in Miaoli County yesterday. “We are working with customers to supply CoWoS-related business, utilizing part of this new fab’s capacity,” Huang said, adding that Powerchip intended to bridge
Microsoft Corp yesterday said that it would create Thailand’s first data center region to boost cloud and artificial intelligence (AI) infrastructure, promising AI training to more than 100,000 people to develop tech. Bangkok is a key economic player in Southeast Asia, but it has lagged behind Indonesia and Singapore when it comes to the tech industry. Thailand has an “incredible opportunity to build a digital-first, AI-powered future,” Microsoft chairman and chief executive officer Satya Nadella said at an event in Bangkok. Data center regions are physical locations that store computing infrastructure, allowing secure and reliable access to cloud platforms. The global embrace of AI
Qualcomm Inc, the world’s biggest seller of smartphone processors, gave an upbeat forecast for sales and profit in the current period, suggesting demand for handsets is increasing after a two-year slump. Revenue in the three months ended in June will be US$8.8 billion to US$9.6 billion, the company said in a statement Wednesday. Excluding certain items, earnings will be US$2.15 to US$2.35 a share. Analysts had projected sales of US$9.08 billion and earnings of US$2.16 a share. The outlook signals that the smartphone market has begun to bounce back, tracking with Qualcomm’s forecast that demand would gradually recover this year. The San