Base metals continue to correct after last week’s windfall gains

The base metals consolidated at lower levels yesterday, November 15 after last week’s rally on the back of the US election result shock ran out of steam and as higher prices attracted selling. Three-month prices closed down an average of 0.5%, lead prices bucked the trend with a 0.3% gain, nickel, zinc and aluminium prices were little changed, copper prices fell 0.7% to $5,522.50 per tonne, while tin prices were off 2.4% at $20,330 per tonne. Precious metals edged higher yesterday, with spot prices up an average of 0.8% as recent weakness ran into support – this, even though the dollar index remained strong, trading either side of the 100 level.

This morning, three-month base metals prices are on a slight backward footing as consolidation remains the theme, prices were are off an average of 0.6%, but volume has fallen to 9,305 lots as of 06:27 GMT, down from an average at around this time of day last week of 21,180 lots. Nickel prices remain little changed, the rest are down between 0.3% for copper ($5,508 per tonne) and lead prices and zinc prices that are down 1.4% at $2,584 per tonne.

Precious metals are mixed this morning, spot PGM prices are down 0.1-0.2%, but spot bullion prices are firmer with gold up 0.3% at $1,230.80 per oz and silver up 0.7% at $17.17 per oz.

In Shanghai, the January contracts’ main direction is downwards, prices are down an average of 1.3%, led by a 4.5% drop in aluminium prices, tin prices are down 1.9%, zinc prices are down 1.6% and copper prices are off 1.4% at Rmb 44,300 per tonne. Lead and nickel prices are bucking the trend with gains of 1.4% and 0.3% respectively. As such, it does look as though the individual fundamentals are playing a part in the corrections. Spot copper prices in Changjiang are down 3.8%, prices lagged behind the futures correction yesterday, November 15, the spread has returned to an equivalent of $15 per tonne backwardation, while the LME/Shanghai copper arbitrage ratio is at 1:8.04, which should mean the arb window is open for trading, even if only for nearby dates.

In other metals in China, January iron ore prices dropped 6.5% to Rmb 577 per tonne on the Dalian Commodity Exchange, on SHFE this morning, January steel rebar prices are off 5.4%, gold prices are up 1.1% and silver prices are up 0.9%. In international markets, spot Brent crude prices are up 0.6% at $47.17 per tonne.

Equities were firmer yesterday with the Euro Stoxx 50 and Dow closing up 0.3 percent and Asian markets are generally firmer this morning with the Nikkei up 1%, the Hang Seng and Kospi are up 0.6% and the CSI and ASX 200 are relatively flat.

In FX, the dollar index is holding up around the 100 level, recently at 99.96, the euro is weak at 1.0751, sterling is easier at 1.2488, the yen is in full retreat at 109.13 and the aussie is weak too, at 0.7544. The yuan continues to fall, recently quoted at 6.8807, and the other emerging market (EM) currencies are on a back footing – worried about potential protectionism and firmer US rates, although the latter being well telegraphed should be priced in. That said, if EM markets do start to fret about potential protectionism, then come December, the FOMC may not be in a position to raise rates – again.

On the economic agenda there is data out on the UK employment situation and leading indicators and US data includes PPI, industrial production, capacity utilisation, NAHB housing market index, crude oil inventories and TIC long-term purchases. In addition, UK’s Monetary Policy Committee member Sir Jon Cunliffe is speaking – see table below for more details.

The base metals are pulling back as traders take advantage of the windfall gains from last week, which were built on the stronger gains from the last week in October and during LME Week. We should now get a feel for how bullish sentiment has become over the past month or so and after the US election, by seeing how well supported the dips are. Any pullback in the dollar may also help support prices, but for now with the dollar strong, there may well be more room for prices to retreat.

Gold prices extended lower last week, the weakness ran into Monday, November 14, but some support has been found above the $1,210 per oz level, basis spot. Silver prices are following gold’s lead, as are platinum prices, while palladium prices are considerably more upbeat and at $700 per oz, spot prices are not far below previous peaks at $727 and $747.50 per oz.

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