Metals – Under Pressure After EGA Update
LME aluminium came under renewed pressure yesterday, with the three-month price falling towards $3,000/t as the market continued to unwind the geopolitical risk premium built up during the Middle East conflict.
Sentiment was weighed down by an update from Emirates Global Aluminium (EGA). It said that around 7% of production pots at its Al Taweelah smelter have been restarted, highlighting steady progress in restoring output following the missile and drone attacks earlier this year.
The update reinforced expectations that supply disruptions in the Gulf will prove temporary. Concerns over lost Middle Eastern production and shipping disruptions through the Strait of Hormuz helped lift prices sharply earlier this year. But recovering output and easing regional tensions have steadily improved the supply outlook.
While a significant portion of Al Taweelah’s capacity remains offline and a full recovery will still take time, the latest update reinforces expectations that lost supply will gradually return to the market. This is easing concerns over aluminium availability.
In precious metals, moved sharply higher yesterday after weaker-than-expected eased concerns that the may need to raise interest rates this year. The softer payrolls report pushed and the US dollar lower, improving the appeal of non-yielding assets such as gold.
The move added to gains seen earlier in the week following less hawkish-than-expected comments from Fed Chair Kevin Warsh. Investors are increasingly reassessing the outlook for US monetary policy. The market will remain focused on incoming economic data to determine whether the recent moderation in labour market conditions continues. This could further reduce pressure on the Fed to tighten policy and remain supportive for gold.
Meanwhile, central banks returned as net gold buyers in May, adding around 41 tonnes, according to the World Gold Council. Poland remained the largest buyer, purchasing 18 tonnes and lifting year-to-date acquisitions to 64 tonnes. China extended its buying streak to 20 consecutive months, adding 10 tonnes. Uzbekistan and Kazakhstan increased reserves by 9 tonnes and 7 tonnes, respectively.
Russia, by contrast, was a net seller, reducing its holdings by 6 tonnes in May and taking year-to-date sales to 34 tonnes. Turkey also cut its gold reserves by 3 tonnes, bringing total sales this year to 81 tonnes. Strong central bank buying continues to provide an important source of support for the gold market.
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