Financial markets experienced a broad-based rally in base metals following the release of the latest Personal Consumption Expenditures (PCE) price index, which indicated easing inflationary pressures. The U.S. dollar weakened in response to the data, further supporting the upward movement in commodity prices.
PCE Inflation Data Signals Moderation
The headline PCE price index for May rose by 0.4% compared to the previous month, falling short of market expectations of a 0.5% increase. On an annual basis, the index was up 4.1%, aligning with forecasts. The core PCE price index, which excludes volatile food and energy prices, also showed moderation, increasing by 0.3% month-over-month and 3.4% year-over-year, matching projections.
Analysts suggest that the PCE data, by remaining within expected ranges, did not trigger significant inflation concerns. This development prompted a wave of buying across risk assets, including base metals.
Base Metal Market Updates
Aluminum
Reports indicate that Rio Tinto has proposed a third-quarter premium of $440 per ton for Japanese Main Ports (MJP). If accepted, this offer would represent a substantial increase from the second-quarter premium of $350 per ton.
Iron
Domestic iron ore stockpiles in China have reached a four-year high, prompting Chinese producers to seek export channels. The Shanghai Futures Exchange (SHFE) iron ore futures are trading at a discount of over $400 per ton compared to the London Metal Exchange (LME), marking the largest discount since 2022.
While this discount makes spot sales to Southeast Asian processors feasible, the price difference widens to approximately $100 per ton when considering the costs and tariffs associated with delivery to LME-registered warehouses in India. Market participants are anticipating the opening of LME export channels for Chinese iron ore, which would allow for greater volumes of metal to be sold on the international market instead of being confined to limited domestic channels.
China’s last significant iron ore exports occurred in October of the previous year, a period that saw a surge in international prices and the establishment of LME inventory. However, the current situation differs. The ongoing conflict in Iran has led to increased energy costs, dampening overseas industrial demand and consequently limiting the support for LME prices. This economic climate may restrict the volume of exports that can be profitably moved.
According to the International Lead and Zinc Study Group (ILZSG), the global iron market experienced a surplus of 145,000 tons in the first four months of the year. During this period, iron production stood at 4,592,000 tons, while consumption was recorded at 4,447,000 tons.
Lead
The ILZSG also reported that the global lead market faced a supply surplus of 8,000 tons from January to April. Lead production during this timeframe reached 4,517,000 tons, with consumption at 4,509,000 tons.
Precious Metals Benefit from Dollar Weakness
Precious metals saw gains as the U.S. dollar declined following the release of the PCE inflation data. The moderation in inflation expectations, indicated by the PCE figures, reduced the pressure on gold and other precious metals, contributing to their upward price movement.
