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April 2019 | Base Metals


LME metals tread water; economic data in focus while market awaits trade deal

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Trading across most of the metals is relatively quiet in early morning on Tuesday April 16 and the market seems to be waiting for fresh direction, which we think means the market is waiting for a US-China trade deal. Before that, today’s ZEW and US industrial production data may provide direction, as too will tomorrow’s Chinese GDP data. 

Base metals 
Trading across the London Metal Exchange remains diverse with three-month copper, zinc and nickel prices rangebound in high ground, with aluminium rangebound in low ground. While tin and lead prices have been under pressure, both have recent found some support. 

The market continues to wait for developments on the US/China trade deal. A new deal is expected to boost business confidence and that in turn could lead to more restocking because the industry is believed to be running with low stocks. 

The stronger equity prices seen in Asia this morning may well provide some support for base metals, especially with the dollar index also heading lower. 

Low volume, with just 3,231 lots traded on LME Select by 7.02am London time, highlights a featureless market that has seen copper hold within a $6,350-6,555 per tonne range for 32 out of the past 37 trading days. 

In China, base metals prices on the Shanghai Futures Exchange were more negative than positive. The two main movers were polarized with June zinc down by 1.3%, while June lead prices were up by 0.9%. June copper was little changed and was recently quoted at 49,480 yuan ($7,375) per tonne, compared with 49,540 yuan per tonne at Monday’s close. 

Spot copper prices in Changjiang were down by 0.2% at 49,200-49,320 yuan per tonne and the LME/Shanghai copper arbitrage ratio was recently at 7.61. 

Ferrous  
In other metals in China, the September iron ore contract on the Dalian Commodity Exchange was down by 1.7% at 642.50 yuan per tonne from 653.50 yuan per tonne at the close on Monday. On the SHFE, the October steel rebar contract was down by 0.9% at 3,786 yuan per tonne compared with 3,821 yuan per tonne at Monday’s close. 

Precious metals  
Spot precious metals prices were mixed with gold and silver prices lower, while the platinum group metals were firmer on Tuesday. The overall trends, however, are to the downside as prices continue to correct recent strength. Gold was recently quoted at $1,285.34 per oz, down 0.2% from Monday’s close at $1,287.80 per oz. 

On the SHFE, the June gold and silver contracts were down by 0.45% and 0.35% respectively, from Monday’s closing levels. 

Wider markets
In wider markets, the spot Brent crude oil price was weaker by 0.39% at $70.96 per barrel from $71.23 per barrel at the close on Monday. 

The yield on US 10-year treasuries was recently quoted at 2.5593%, the yields on the US 2-year and 5-year treasuries remain inverted - they were recently quoted at 2.3948% and 2.3746% respectively. The German 10-year bund yield was recently quoted at 0.0600%. 

Asian equity markets were stronger on Tuesday, aided by the People’s Bank of China injecting liquidity into the market for the first time in 18 days: the Nikkei (+0.24%), the CSI 300 (+2.77%), the Hang Seng (+0.82%), the Kospi (+0.26%) and the ASX 200 (+0.42%). This move by the PBoC could forewarn a poor GDP number. This follows a mixed performance in western markets on Monday: in the United States, the Dow Jones Industrial Average closed down by 0.10% at 26,384.77, and in Europe, the Euro Stoxx 50 was up by 0.08% at 3,450.46. With US earnings season under way, US equities may well be jittery. 

Currencies 
The dollar index has been drifting and was recently at 96.93. It had recently once again run into resistance above 97.50. The consolidation in the dollar has helped the euro (1.1311), although sterling is flat (1.3080), while the yen (111.89) and the Australian dollar (0.7150) are on a back footing. The yuan remains rangebound; it was recent quoted at 6.7066. The other emerging market currencies we follow are not showing any concerted direction. 

Key economic data 
On Tuesday, data already out in Japan showed tertiary industrial activity fall 0.6%, this after a previous reading of +0.6%. Later there is data on UK employment, German and EU ZEW data, which are expected to both turn positive after having been negative for the past 10-12 months. There is also data on US industrial production, capacity utilization and housing. Any signs of improvement in EU and US data may well start to lay the foundations for a recovery in business confidence, which a trade deal could then build on. Key though is likely to be China’s GDP number out on Wednesday. 

Today’s key themes and views 
With the exception of lead and tin that have been under pressure of late, the other base metals seem to be treading water, waiting for a new US/China trade deal. While this has been much talked about and is therefore anticipated, we still feel that as the trade dispute has caused the global economy to slow down so much, that a new deal will breathe new life into the global economy. And that will lead to restocking and a pick-up in capital spending. 

The fact gold prices have turned back from high ground and are looking quite vulnerable may be another sign that the market expects a recovery in global growth and therefore the need for havens as diminished.

William Adams
Fastmarkets