Corrections underway in metals prices, where will support be found?

The corrections in the base metals continued on Tuesday, November 29, with three-month prices closing down an average of 2.5%, with lead prices leading the declines with a 3.7% drop, while aluminium prices were down the least with a 0.9% drop to $1,719 per tonne. Copper prices closed off 2.3% at $5,739.50 per tonne. Precious metals prices were generally weaker by an average of 0.5%, palladium prices continued to buck the trend with a 0.5% gain to $760 per oz, the rest were lower, with spot gold prices off 0.5% at $1,188.25 per oz.

This morning November 30, the base metals complex is down an average of 0.8%, lead is the only one holding ground, the rest are down between 0.5% for tin and 1.7% for nickel. Copper prices are down 1.4% to 5,662 per tonne. Volumes remain high with 18,172 lots traded as of 06:04 GMT.

Precious metals are firmer this morning, up an average of 0.2% with spot gold prices up 0.1% at $1,189.60.

In Shanghai, the base metals futures prices are down heavily, off an average of 6.1%, led by 7% declines in lead and zinc, while February copper is down 5.7% at Rmb 45,230 per tonne, see table below for more details. Spot copper in Changjiang is down 2.9% at Rmb 46,430-46,630 per tonne, this suggests the futures have carried on selling-off since the spot prices were set. The LME Shanghai copper arb ratio has eased to 1:7.96, which may well mean the arb window has closed.

In other markets in China, May iron ore prices on the Dalian Commodity Exchange are down 7.9%, on SHFE steel rebar prices are down 7%, silver prices are off 1% and gold prices are off 0.2%. In international markets, spot Brent crude prices are up 1% at $47.66.

Equities remained upbeat yesterday, November 29, with the Euro Stoxx50 up 0.7% and the Dow closed up 0.1%. This morning the Nikkei is little changed, the Hang Seng and Kospi are up 0.3%, the CSI 300 is down 0.7% and the ASX 200 is down 0.3%.  So far with the equities not slumping, the corrections in the base metals look to be fairly localised.

In FX, the dollar index is consolidating at lower levels, it was recently quoted at 101.80, the euro is at 1.0637, sterling is flat at 1.2479, the yen is off recent lows, it was recently quoted at 112.60 and the aussie is firmer at 0.7478. The yuan is firmer at 6.8852, the recent low being 6.9330. The other emerging market currencies we follow are for the most part consolidating after recent weakness.

There is a host of data out today, Japanese housing starts climbed 13.7%, which was better than expected, later there is data on German retail sales, unemployment change, UK bank test results,  French, Italian and EU CPI, with US data including personal income, spending and prices, Chicago PMI, pending home sales and crude oil inventories. There is also the much-awaited OPEC meeting and bank of England Governor Mark Carney, ECB President Mario Draghi, German Bundesbank Jens Weidmann and FOMC member Jerome Powell are speaking – see table below for more details.

We said in Monday’s Morning View report that although we are bullish on the fundamentals, we were less bullish on prices at these levels and it does look as though some sharp corrections are now unfolding. With options declaration next Wednesday the swings in prices will be adding volume to the market as delta-hedgers have to take on and remove cover as options swing from being in and out of the money. With corrections underway it will now be interesting to see how bullish underlying sentiment is. Generally prices started to gather momentum the week before LME Week, they were  boosted by President-elect Donald Trump’s win, which combined with optimism for more infrastructure spending in China, fuelled the rallies. Given the price gains and option declaration in a week’s time we would now expect a period of drawn out consolidation.  If the pullbacks turn out to be short-lived downward spikes, then that would suggest sentiment remains bullish.

Precious metals are split between palladium that has shot higher and the rest that are consolidating just above recent lows and as such remain vulnerable. On balance, we are looking for bargain hunting in the precious metals to emerge, but it may well take a base to be built before confidence returns.

 

Overnight Performance
GMT	06:04	+/-	+/- %	Lots
Cu	5662	-77.5	-1.4%	7619
Al	1707	-12	-0.7%	2603
Ni	10965	-185	-1.7%	3035
Zn	2715	-20	-0.7%	4273
Pb	2354	1	0.0%	544
Sn	20390	-110	-0.5%	98
	Average		-0.8%	18,172
Gold	1189.58	1.33	0.1%
Silver	16.678	0.043	0.3%
Platinum	919.6	2.6	0.3%
Palladium	761	1	0.1%
	Average PM		0.2%

 

SHFE Prices 06:04 GMT	RMB	Change	% Change
Cu	45230	-2720	-5.7%
AL	13130	-595	-4.3%
Zn	22545	-1700	-7.0%
Pb	20670	-1560	-7.0%
Ni	90430	-6380	-6.6%
Sn	137640	-8520	-5.8%
Average change (base metals)	0		-6.1%
Rebar	3000	-226	-7.0%
Au	271.25	-2.25	-0.8%
Ag	4150	-44	-1.0%

 

Economic Agenda
GMT	Country	Data	Actual	Expected	Previous
5:00am	Japan	Housing Starts y/y	13.7%	11.5%	10.0%
7:00am	Germany	Retail Sales m/m		1.0%	-1.4%
7:00am	UK	Bank Stress Test Results
7:00am	UK	BOE Financial Stability Report
7:00am	UK	FPC Statement
7:45am	France	Prelim CPI m/m		-0.1%	0.0%
8:55am	Germany	Unemployment Change		-5K	-13K
All Day	ALL	OPEC Meetings
10:00am	EU	CPI Flash Estimate y/y		0.6%	0.5%
10:00am	EU	Core CPI Flash Estimate y/y		0.8%	0.8%
10:00am	Italy	Prelim CPI m/m		-0.2%	-0.1%
12:30pm	EU	ECB President Draghi Speaks
1:15pm	US	ADP Non-Farm Employment Change		165K	147K
1:30pm	US	Core PCE Price Index m/m		0.1%	0.1%
1:30pm	US	Personal Spending m/m		0.5%	0.5%
1:30pm	US	Personal Income m/m		0.4%	0.3%
2:45pm	US	Chicago PMI		52	50.6
3:00pm	US	Pending Home Sales m/m		0%	2%
3:30pm	US	Crude Oil Inventories			-1.3M
4:00pm	Germany	German Buba President Weidmann Speaks
4:45pm	US	FOMC Member Powell Speaks
7:00pm	US	Beige Book

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