OREANDA-NEWS. In June, base metals remained under pressure with the Greek debt crisis overshadowing sentiment and contracts traded on the London Metal Exchange testing fresh multi-month, and in some cases, multi-year lows.

After a more positive start to the month than most metals, nickel traded at its lowest level in six years, with the three-month price trading as low as $10,795/mt on LME select at the end of the month.

LME Three-Month Base Metal Price Index -- June

Meanwhile, three-months aluminum traded at its lowest level since February 2014 at $1,682/mt and three-months copper hit a three month low at $5,669.50/mt.

Last month, we joked that perhaps base metal prices were waiting for St Leger Day before they are likely to see an upturn. If June’s price performance was anything to go by, we’re beginning to think perhaps the joke might soon prove to be correct.

Drivers of weaker performance

So what was behind the weaker price performance in June? At the start of the month, metals struggled in light of lower global growth forecasts.

The Organization for Economic Co-operation and Development (OECD) lowered its global GDP forecast to 3.1% for 2015, from a previous forecast of 3.6%, and also lowered its growth target for 2016 to 3.8% from a previous target of 3.9%.

Most worrying for metals was that the OECD revised its GDP forecast for China down to 6.8% from a previous target of 7.1%, also revising down its 2016 forecast to 6.7% from 6.9%. Likewise, the International Monetary Fund (IMF) cut its US growth forecast at the beginning of June for 2015 to 2.5% from 3.1% and urged caution that the US Federal Reserve should delay raising rates until the first half of 2016.

Greek drama

At the beginning of the month, Greece also announced that it would delay its first debt repayment to the IMF and bundle all payments totaling Eur1.5 billion for payment at the end of June.

As the month rolled on, the Greek debt drama gained increasing attention and burdened markets as meeting after meeting failed to see a compromise between Greece and its creditors, with Greek Prime Minister Alexis Tsipras failing to agree to the full extent of economic reforms.

Greece’s failure to make the payment at the end of the month made it the first advanced economy to default on a repayment to the IMF and brought further turmoil to markets with base metal prices reacting negatively to the news.

The market is now watching closely for the referendum result at the weekend.

China outlook weighs in

On top of the Greek debt drama, base metals also had to come to terms with a weaker fundamental outlook from China.

Disappointing China metals import data saw unwrought copper imports down 16.3% month on month in May to 360,000 mt and down 5.3% year on year. Over January-May, copper imports totaled 1.9 million mt, down 12.5% year on year. Overall, Chinese customs data showed that imports slumped 17.6% year on year in May to $131.26bn — the third straight month of decreases.

The weaker outlook for China saw more calls for stimulus measures as a decline in producer prices also pointed to weaker domestic demand. These calls were answered at the end of June when the Chinese central bank lowered interest rates by 25 basis points for the fourth time in the last seven months and additionally reduced the reserve requirement ratio for certain banks by 50 basis points.

Attention also remained focused on the US with the economic rebound continuing after a weak Q1 that rekindled speculation that the Federal Open Market Committee would bring forward the date at which it will raise interest rates.

Both the World Bank and the IMF urged the Federal Reserve to hold off on the rate rise until early 2016 to avoid increased volatility. Federal Reserve chairwoman Janet Yellen said an increase in interest rates was certainly possible this year, but also added that there was too much focus on when will be the right time, “whether it is September or December or March.”

Supportive manufacturing data

However, June PMI manufacturing data from key regions was broadly supportive for base metals, indicating a slight improvement for the global manufacturing sector.

China’s official manufacturing PMI was unchanged at 50.2, while the HSBC Markit manufacturing PMI came in at 49.4 up from 49.2 in May. According to the Markit PMI report, manufacturers in China signaled a ‘tentative improvement in overall demand conditions’ at the end of Q2, with expansion in total new business placed at goods producers, and new work from abroad also rising.

However, the rate of growth was only slight in both cases. The eurozone PMI was also up at 52.5 in June from 52.2 in May, its highest reading since it registered 53.4 in April 2014.

Likewise, the US manufacturing ISM in June was up at 53.5 from 52.8 in May, equaling the year high seen in January and showing recovery from a weak Q1 when the index hit a near two-year low.

global manufacturing PMIs

However, LME position data at the end of the month was less supportive for the base metals complex. According to the LME’s Commitments of Traders Report (COTR), money manager positions for most metals turned bearish over June with a reduction in net length for all metals except lead and tin.

Net length for copper fell by 1,728 lots (17%) to 8,149 lots on June 26 from a net length of 9,877 lots June 19.

Money manager positions for copper were at their lowest level on June 25 since the LME started publishing the COTR data. Elsewhere, net length for aluminum fell 7,380 lots (13%) June 26 at 51,408 lots compared to 58,788 lots June 19.

This was driven by another large increase in short selling at 9,901 lots. The net long position for nickel saw the heaviest decline at the end of June and dropped 3,173 lots (34%) to 6,134 lots on June 26. Nickel prices had received some fundamental support earlier in the month with China importing 23,146 mt of refined nickel in May, up from 10,193 mt year on year.

China’s ferronickel imports were also up at 61,551 mt in May from 17,745 mt in May 2014. Ferronickel imports in the period January-May 2015 stand at 258,638 mt up from 122,511 mt in the same period last year.

LME warehouse stocks also continued to decline over June finishing the month at 457,110 mt down 8,454 mt from the end of May. However, despite fundamental support, nickel fell sharply at the end of the month. The market speculated that the move lower was partly a response to news that Russian nickel producer Norilsk Nickel had registered three nickel brands for physical delivery on the Shanghai Futures Exchange.

So June was another bearish month for base metals with the Greek debt drama, China’s slower growth and the potential date for the US rate increase all weighing on investor sentiment.

Analysts still appear to be suggesting the second half of 2015 will be better for metals but we are still looking for signs of restocking and for some markets to show evidence of a more balanced fundamental outlook.