Metals prices run into resistance, dollar strength not helping

The base metals were mixed yesterday with three-month nickel prices rising 1.3 percent to close at $10,440 per tonne, while lead prices dropped 1.3 percent to close at $2,027.50 per tonne, copper was off 0.4 percent at $4,808 per tonne, zinc and tin prices were up 0.5 and 0.4 percent respectively, while aluminium prices were off 0.2 percent. A stronger dollar seems to be a general headwind that seems to be prompting some roll-over in prices.

Precious metals were split yesterday, the PGMs continue to sell-off as the market expects further wage deals to be agreed following the one between the NUM and Implats, while spot gold and silver prices are consolidating after last week’s sell-off – but they remain vulnerable, especially with the dollar as strong as it is.

This morning, three-month LME base metals prices are off an average of 0.4 percent, led by a 1.3 percent drop in nickel to $10,445 per tonne, aluminium is bucking the trend it is up 0.2 percent, while the rest are off between 0.1 percent for lead and zinc prices and 0.6 percent for tin prices, copper’s price is off 0.3 percent at $4,794 per tonne. Volume remains below average with 3,983 lots traded.

Spot precious metals are for the most part firmer with average gains of 0.4 percent, led by 0.7 percent gains in silver and platinum prices, while palladium’s price is off 0.2 percent and gold prices are up 0.3 percent at $1,259.55 per ounce.

In Shanghai, the base metals prices are mixed with the main movers being December aluminium that is up 1.2 percent, lead and nickel prices are off around 1.2 percent, while the others are little changed with the December copper prices off 0.1 percent at Rmb 37,870 per tonne. Spot copper prices in Changjiang are unchanged at Rmb 38,030-38,150, the spread between spot and the December contract is at an equivalent of $41 per tonne backwardation, while the LME/Shanghai copper arb ratio is wider at 7.9, which may well open up some arbitrage opportunities.

In other metals in China, January iron ore prices on the Dalian Commodity Exchange are 0.5 up percent, steel rebar on SHFE is up 0.3 percent and gold and silver prices are up either side of 0.3 percent. In international markets, spot Brent crude is off 0.5 percent at $51.40.

Equities – the Euro Stoxx 50 closed off 0.4 percent and the Dow closed up 0.1 percent yesterday, Asia this morning is down, worried by lower Chinese export data. The Nikkei is off 0.4 percent, the Hang Seng is down 1.3 percent, the CSI 300 is off 0.1 percent, the ASX 200 is down 0.7 percent and the Kospi is down 0.8 percent.

In FX, the dollar index remains upbeat with the index recently at 97.92, the latest boost coming after the FOMC Meeting minutes that showed the majority of FOMC members expected a rate rise this year. With the US election a few days after the November FOMC meeting, the chances are that a rate rise, if seen, will be in December. The stronger dollar has seen most currencies weaken with the euro at 1.1015, sterling at 1.2180, the aussie at 0.7534, although the yen is firmer at 103.80, having been as low as 104.63 earlier in the day. In emerging market (EM) currencies the yuan is gapping lower, last at 6.7260 – this could start to worry broader markets. The other EM currencies we follow are weaker too this morning. The risk-off barometer may be rising given the weaker EM currencies.

China’s trade balance was weaker than expected at $42 billion, it was expected to be $53 billion, having previously been $52.05 billion. Later there is data on German CPI, US initial jobless claims, import prices and natural gas and crude oil inventories – see table below for more details.

The stronger dollar combined with previous resistance levels seems to have provided too strong a headwind for base metals prices to push higher and there is a certain amount of rolling over to the downside, which for now we see as consolidation. But, if broader markets become more risk-off for a while then the pullbacks go deeper – we would still expect dip buying to provide support though.

Gold and silver prices are consolidating after last week’s sell-off but, until they start to get some lift they will remain in a vulnerable situation – there could easily be another downward leg. Spot gold prices are for now finding support around the 38.2 percent Fibonacci retracement level of this year’s rally. The PGMs remain under pressure, but are starting to look oversold, at least platinum is.   

 

Overnight Performance
BST	06:12	+/-	+/- %	Lots
Cu	4794	-14.5	-0.3%	1667
Al	1680.5	3.5	0.2%	728
Ni	10445	-135	-1.3%	826
Zn	2260	-3	-0.1%	628
Pb	2025.5	-2	-0.1%	108
Sn	19750	-120	-0.6%	26
	Average		-0.4%	3,983
Gold	1259.55	4.15	0.3%
Silver	17.623	0.128	0.7%
Platinum	946.2	6.2	0.7%
Palladium	643.4	-1.6	-0.2%
	Average PM		0.4%

 

SHFE Prices 06:16 BST	RMB	Change	% Change
Cu	37870	-50	-0.1%
AL	12790	155	1.2%
Zn	17850	25	0.1%
Pb	15475	-190	-1.2%
Ni	81540	-900	-1.1%
Sn	128390	-250	-0.2%
Average change (base metals)	0		-0.2%
Rebar	2341	6	0.3%
Au	274.4	1.05	0.4%
Ag	3998	6	0.2%

 

Economic Agenda
BST	Country	Data	Actual	Expected	Previous
12:01am	UK	RICS House Price Balance	17%	14%	13%
12:50am	Japan	Bank Lending y/y	2.2%	2.0%	2.0%
3:00am	China	Trade Balance	278B	365B	346B
3:23am	China	USD-Denominated Trade Balance	42.0B	53.B	52.05B
5:30am	Japan	Tertiary Industry Activity m/m	0.0%	-0.2%	0.2%
7:00am	Germany	Final CPI m/m		0.1%	0.1%
1:30pm	US	Initial jobless claims		254K	249K
1:30pm	US	Import Prices m/m		0.2%	-0.2%
3:30pm	US	Natural Gas Storage		84B	80B
4:00pm	US	Crude Oil Inventories		0.4M	-3.0M

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