METALS MORNING VIEW 08/09: Base metals prices turn lower after flat opening

The base metals were initially little changed this morning, Friday September 8, with prices up an average of 0.1%, apart from copper that was off 0.1% at $6,912 per tonne, but weakness has since set in.

Nickel prices led on the upside with a 0.3% gain to $12,225 per tonne, but as of 07:54 BST base metals prices are off 1.3%. Volume had been average with 7,599 lots traded as of 06:34 BST.

This follows a mixed day of trading on Thursday that saw zinc prices rally 0.9%, while nickel prices dropped 0.5% and the rest were little changed as they consolidated.

Precious metals are stronger this morning. Gains ranged between 0.4% for spot silver prices and 0.9% for palladium prices, while gold and platinum prices are both up 0.6%, with gold prices at $1,355.87 – a fresh high for the year. This follows a stronger performance on Thursday when the complex closed up an average of 1.4%.

On the Shanghai Futures Exchange (SHFE) this morning, the base metals are mainly weaker, down an average of 0.5%, led by losses of 0.8% in copper and aluminium prices, with copper at 52,620 yuan ($8,150) per tonne. The exception is tin, where prices are up 0.1%

Spot copper prices in Changjiang are down 0.9% at 52,510-52,6700 yuan per tonne and the London/Shanghai copper arb ratio has climbed to 7.74 (7.71).

Steel rebar prices on the SHFE are weaker again this morning, off 0.6%, while gold and silver prices are little changed. Iron ore prices for January delivery are also weaker, off 0.8% at 545.50 yuan per tonne on the Dalian Commodity Exchange.

In international markets, spot Brent crude oil prices are up 0.4% at $54.70 per barrel and the yield on US ten-year treasuries has fallen further to 2.02%, while the German ten-year bund yield has fallen to 0.29% – both signs of safe-haven buying and dovish monetary policy.

Equities in Asia are mixed this morning, with the Nikkei down 0.7%, the ASX 200 off 0.3% and the Kospi off 0.2%, while the Hang Seng is up 0.6% and the CSI 300 is up 0.2%. US markets were weaker yesterday with the Dow down 0.1% at 21,784.78 while in Europe, the Euro Stoxx 50 closed up 0.4% at 3,447.66.

The dollar index extended lower yesterday after poor data and a bullish euro. The index was recently quoted at 91.20, the low earlier being 91.01. Meanwhile, the euro shot higher yesterday and has extended gains this morning to 1.2066 – the highest since December 2014. Sterling is bullish at 1.3133, as are the yen at 107.83 and the Australian dollar at 0.8104 – at its highest since May 2015.

The Chinese yuan has also strengthened considerably: it was recently quoted at 6.449, having been 6.5406 this time yesterday. Most of the other emerging market currencies we follow are firm, with the ringgit and rupiah particularly strengthening against the dollar. The latter has broken out of a very tight sideways range that has been in existence for most of the year.

Data out already today showed Japan’s final GDP reading revised to 0.6%, from 1%, with GDP prices holding at -0.4%. China’s trade balance dropped to $42 billion, from $46.7 billion, as exports slowed more than expected but imports were stronger. The latter supports our view that China’s economy is strengthening.

Data out later includes Germany’s trade balance, French industrial production, UK manufacturing and industrial production, UK goods trade balance, UK construction output and consumer inflation expectations and GDP estimates, with US data including final wholesale inventories and consumer credit. In addition, FOMC member Patrick Harker is speaking this afternoon.

Upward momentum in the base metals has waned, but in recent days dips have tended to attract buying – although not enough to attract follow through buying. As such, with resistance encountered, we do expect more profit-taking and pricing so would not be surprised to see prices correct for a while. If equity markets also start to show some weakness, combined with geopolitical concerns over North Korea not dissipating, we would not be surprised to see some risk-off before too long. We remain bullish for the metals’ fundamentals, but prices may have run ahead of the fundamentals for a while.

Gold prices continue to push higher, underpinned by geopolitical concerns over North Korea. Given another escalation is expected over the weekend, or early next week, gold is likely to remain in demand. Prices are closing in on last year’s highs so some nervous profit-taking may emerge, leading to choppy trading, but the combination of North Korea, a weak dollar and low treasury yields are all supportive. Silver and platinum may well follow gold, but palladium prices that are already elevated, may struggle more.

Overnight Performance
BST	06:34	+/-	+/- %	Lots
Cu	6912	-3.5	-0.1%	3008
Al	2117	3	0.1%	1191
Ni	12225	40	0.3%	1590
Zn	3135.5	1.5	0.0%	1239
Pb	2347.5	0	0.0%	458
Sn	20800	45	0.2%	113
	Average		0.1%	7,599
Gold	1355.87	8.32	0.6%
Silver	18.169	0.079	0.4%
Platinum	1020.3	6.3	0.6%
Palladium	962.9	8.9	0.9%
	Average PM		0.7%

 

SHFE Prices 06:33 BST	RMB	Change	% Change
Cu	52620	-430	-0.8%
AL	16200	-125	-0.8%
Zn	25015	-55	-0.2%
Pb	19070	-10	-0.1%
Ni	95270	-470	-0.5%
Sn	145420	170	0.1%
Average change (base metals)			-0.4%
Rebar	3958	-24	-0.6%
Au	283.15	-0.05	0.0%
Ag	4051	6	0.1%
Iron Ore (DCE) Jan’18	545.5	-4.5	-0.8%

Economic Agenda
BST	Country	Data	Actual	Expected	Previous
12:50am	Japan	Final GDP q/q	0.6%	0.7%	1.0%
12:50am	Japan	Bank Lending y/y	3.2%	3.3%	3.3%
12:50am	Japan	Current Account	2.03T	1.65T	1.52T
12:50am	Japan	Final GDP Price Index y/y	-0.4%	-0.4%	-0.4%
4:05am	China	Trade Balance	287B	337B	321B
4:13am	China	USD-Denominated Trade Balance	42.0B	48.4B	46.7B
6:00am	Japan	Economy Watchers Sentiment	49.7	49.5	49.7
7:00am	Germany	German Trade Balance	19.5B	20.3B	21.2B
7:45am	France	French Gov Budget Balance			-62.3B
7:45am	France	French Industrial Production m/m		0.5%	-1.1%
9:30am	UK	Manufacturing Production m/m		0.3%	0.0%
9:30am	UK	Goods Trade Balance		-11.9B	-12.7B
9:30am	UK	Construction Output m/m		-0.2%	-0.1%
9:30am	UK	Consumer Inflation Expectations			2.8%
9:30am	UK	Industrial Production m/m		0.2%	0.5%
1:00pm	UK	NIESR GDP Estimate			0.2%
1:45pm	US	FOMC Member Harker Speaks
3:00pm	US	Final Wholesale Inventories m/m		0.4%	0.4%
8:00pm	US	Consumer Credit m/m		15.1B	12.4B

 

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