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May 2017 | Base Metals


Metals looking vulnerable again

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A weaker tone has returned to the base metals on the London Metal Exchange this morning, Thursday May 18, with all the metals prices, except tin, lower.

Those that are down, are weaker by an average of 0.7%, lead prices remain the weakest of the complex, with prices down 1.1% at $2,091.50 per tonne, basis three-months, while the rest are down between 0.4% for nickel prices and 0.8% for copper, which was trading at $5,567 per tonne at 06:02 BST. Tin prices are 0.2% firmer at $20,225 per tonne. Volume on the exchange has been average with 5,770 lots traded.

Trading on Wednesday, saw strong gains in tin, where prices closed up 1.5%, and lead where prices were up 1.2%, zinc prices were up 0.4%, while the rest were off between 0.1 and 0.4%.

Spot gold is little changed at $1,259.75 per oz this morning, silver and platinum prices are down 0.4%, while palladium prices are up 0.3%. Wednesday saw gold prices rise 1.9%, platinum prices were up 0.6%, silver prices were up 0.4%, while palladium prices dipped 1.6% to $782 per oz. The run-up in bullion prices seems mainly driven by political uncertainty in Washington DC.

In Shanghai this morning, most of the base metals trading on the Shanghai Futures Exchange are weaker, the exception is the 1.1% gain in tin prices. The rest are down by an average of 0.9%, led by a 1.5% fall in nickel prices, while copper prices are down 0.9% at 45,020 yuan per tonne. Spot copper prices in Changjiang are down 0.5% at 44,950-45,150 yuan per tonne, while the LME/Shanghai copper arb ratio is slightly easier at 8.09.

September iron ore prices are down 0.4% at 470.50 yuan per tonne on the Dalian Commodity Exchange, while on the SHFE, steel rebar prices are up 1.2%, gold prices are up 1.4% and silver prices are up 0.5%.

In international markets, spot Brent crude oil prices are off slightly at $51.93 per barrel as the market consolidates after recent gains. The yield on the US ten-year treasuries has weakened to 2.24%, again the lower yield, firmer gold and yen, all point to a pick-up in haven demand.

Equities reacted more to the political unease in the USA on Wednesday with the Euro Stoxx 50 and Dow closing down 1.6% and 1.8%, respectively, with the Dow closing at 20,606.93. Weakness has followed through to Asia this morning, with the Nikkei off 1.5%, the ASX 200 is down 1%, the Kospi is off 0.4% and the Hang Seng and CSI 300 are both down 0.3%.

The dollar index plunged for a second day on Wednesday, falling to a low of 97.33, it is steadier this morning at 97.61, but the breakdown below the support line does seem to have set a new direction for the dollar, at least for now. The euro has mirrored the dollar’s move, it has reached 1.1172, but is pausing this morning at 1.1142. Sterling is flat at 1.2962, the yen is stronger at 111.27, while the Australian dollar is stronger at 0.7453. Given the political stability in the EU, the instability in the USA and uncertainty over Brexit, we would expect the euro to outshine the pound.

The yuan is holding on to most of its gains, it was recently quoted at 6.8802, but other emerging market (EM) currencies are weaker, suggesting some risk-off and nervousness.

Data out today shows Japan’s preliminary GDP rose 0.5% in the first quarter, from 0.3% in the fourth quarter last year. GDP price index dropped 0.8%, previously it was down 0.1%. Later there is data on UK retail sales, with US data including initial jobless claims, the Philly Fed manufacturing index, leading indicators and natural gas storage. In addition, European Central Bank president Mario Draghi is speaking this evening at 6pm BST.

Tin prices have broken higher, low stocks and tightness in the spread seem to have finally led to a price reaction. The other metals are looking weaker this morning, copper’s and aluminium’s grind higher over the past five trading days appears to have run out of steam, while lead, zinc and nickel prices have been sliding. Last weekend’s announcement by China about infrastructure spending seems to have been the catalyst for the metals’ consolidation/rebounds this week, but the reaction has not been universally bullish, so again it may be a case that the announcement has supported the longer term outlook, but the market needs more evidence of stronger nearby fundamentals. Another large stock increase on Wednesday in LME copper stocks was another cold-water moment for copper bulls. On balance, the base metals remain vulnerable, although tin may be able to trade its own fundamentals.

Gold prices have been leading the rebound in the precious metals sector, silver is following gold’s lead, as is platinum, while palladium has pulled back from high ground. This morning, the recent moves in the precious metals are being consolidated, but political developments in the USA are likely to underpin the rally in gold prices and we would look for dips to be well supported, especially if the dollar continues to weaken.

This article was first published by FastMarkets as the Metals Morning View.

William Adams
FastMarkets



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