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April 2019 | Base Metals


Disappointing Chinese PMI data keeps LME base metals prices on back foot

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Base metals prices on the London Metal Exchange were for the most part treading water this morning, Tuesday April 30, while the market digests the disappointing Chinese data released earlier. This, combined with the fact that many Asian market participants are away for holidays this week, is likely to lead to subdued trading – but reduced liquidity could also lead to increased volatility.

Base metals
Three-month base metals prices on the LME were mixed this morning with copper, aluminium, zinc and lead off by between 0.1% and 0.4%, while nickel was up by 0.2% and tin was up by 0.5%.

Volume has been slightly below average with 4,202 lots as of 06:35am London time, compared with 4,811 lots at a similar time on Monday.

The market continues to wait for concrete developments on the US-China trade deal which may be forthcoming over the next few weeks as there are high level meetings in Beijing this week and in the United States next week. So the market may have further waiting to do, which is likely to increase the chance of the metals treading water until an announcement is made. That is unless there are negative posts on news and social networking service Twitter from US President Donald Trump.

In China, base metals prices on the Shanghai Futures Exchange were for the most part stronger, with the June contracts for copper, aluminium and zinc and the September contract for tin up by an average of 0.5%, while June nickel and lead were off by 0.1%. June copper was up by 0.2% at 49,000 yuan ($7,277) per tonne, compared with 48,880 yuan per tonne at Monday’s close.

Spot copper prices in Changjiang were up by 0.1% at 48,780-48,860 yuan per tonne and the LME/Shanghai copper arbitrage ratio was slightly firmer at 7.66, compared with 7.64 at a similar time on Monday.

Ferrous
In other metals in China, the September iron ore contract on the Dalian Commodity Exchange was up by 2.1% at 639 yuan per tonne from 626 yuan per tonne at the close on Monday. On the SHFE, the October steel rebar contract was up by 1.5% at 3,817 yuan per tonne compared with 3,760 yuan per tonne at Monday’s close.

Precious metals
Spot precious metals prices were for the most part firmer this morning, the exception was silver that was unchanged at $14.91 per oz, while the rest were up between 0.2% and 0.4%, with gold recently quoted at $1,282.53 per oz, compared with Monday’s close at $1,280.20 per oz.

On the SHFE, the June gold and silver contracts were down by 0.1% and 0.3% respectively from Monday’s closing levels.

Wider markets
In wider markets, the spot Brent crude oil price is consolidating after Friday’s pullback, it was recently up by 0.39% at $72.22 per barrel – this after its recent high of $75.58 per barrel on April 25 and Monday’s low at $71.05 per barrel. The initial run-up was a reaction to the US tightening its sanctions against Iranian exports, the correction followed when President Trump urged Opec to lower prices last week.

US treasuries yields are slightly weaker again this morning, recently quoted at 2.5117% compared with 2.5135%at a similar time on Monday. The yields on the US 2-year and 5-year treasuries have moved out to a larger contango – they were recently quoted at 2.2751% and 2.2924% respectively. The German 10-year bund yield was recently quoted at 0.01000%, unchanged from a similar time on Monday.

Asian equity markets were for the most part weaker on Tuesday: the Nikkei (closed), the CSI 300 (+0.20%), the Hang Seng (-.68%), the Kospi (-0.58%) and the ASX 200 (-0.54%).

This follows slightly stronger performance in western markets on Monday: in the US, the Dow Jones Industrial Average closed up by 0.04% at 26,554.39, and in Europe, the Euro Stoxx 50 was also up by 0.04% at 3,501.94.

Currencies
The dollar index broke higher on April 23 and climbed to a high of 98.35, the highest since June 2017, when it was on the way down from the January 2017 peak of 103.82. It is now edging lower and was recently quoted at 97.75. The stronger dollar was weighing on the other major currencies but since it has started to drift, the other currencies have managed to get some lift: the euro (1.1189), sterling (1.2945), the yen (111.38) and the Australian dollar (0.7045).

The yuan has weakened out of its two-month sideways range, which is in line with the dollar’s recent strength. It was recently quoted at 6.7379. The other emerging market currencies we follow are consolidating off recent lows.

Key data
Tuesday is a busy day for economic data, we will now have to wait a few months to see what trend develops in China’s purchasing managers’ index (PMI) as the Labor Day holidays at the start of May are likely to affect next month’s readings. French gross domestic product (GDP) came in unchanged at 0.3%, as did German GfK consumer climate data, while German import prices were flat having climbed 0.35 previously.

Data out later includes consumer price index (CPI), GDP and unemployment data for various European countries, with US data including Chicago PMI, consumer confidence, house prices and pending home sales. The GDP and CPI data is likely to be the more influential data.

Today’s key themes and views
With the exception of aluminium where prices are still drifting lower, the rest of the base metals are consolidating. Considering the large rise in copper stocks that were announced on Monday, copper has done well to hold up. The weaker-than-expected Chinese PMI data is likely to make the upside going difficult and while the market waits for news on a trade deal, we would now look for either consolidation or further tests of support.

For the precious metals we see the path of least resistance to the downside. Given we expect a US-China trade deal to emerge over the next few weeks, the need for haven assets may well diminish further. That is unless tighter US sanctions on Iran increase geopolitical tensions, or if trade talks turn sour.

William Adams
Fastmarkets