denisovail1986: METALS MORNING VIEW 23/04: Bullishness over US sanctions eases; metals prices consolidate

The base metals traded on the London Metal Exchange have kicked off the new trading week with a broadly positive performance this morning, Monday April 23.

Sanction-hit aluminium leads on the upside with a gain of 0.8%, followed by lead, copper and zinc, which are up by 0.7%, 0.6% and 0.4% respectively. Nickel and tin are bucking the uptrend, however, with losses of 0.8% and 0.1% respectively.

With no imminent sign of Rusal-style US sanctions being imposed on Russian nickel producer Nornickel, common sense has seemingly prevailed in the nickel market after the alloying metal got caught in the sanction crossfire, with nickel now unwinding its bullish excess.

On average, the LME base metal prices were up by 0.3% as of 06:33 am London time. But with a relatively low volume of 4,918 lots traded across the complex so far this morning – compared with last week’s average of 8,151 lots – this indicates that the market is in consolidation mode.

In precious metals, the recent demand for the dollar has capped the advances in both gold and silver prices. This morning, gold settled lower at $1,334.80 per oz, while silver managed to hold above $17.00 per oz. With demand for haven assets diminishing, platinum prices have edged lower from last week’s high of $954 per oz and is trading at around $927 per oz. Meanwhile, palladium has so far managed to hold on to most of last week’s gains, up 0.2% at $1,031.80 per oz.

On the Shanghai Futures Exchange, generally upbeat risk appetite in the early Asian trading session provided support to the base metals with prices up by an average of 0.5%. Aluminium prices were unchanged, while nickel (-0.2%) remained under selling pressure. The rest of the metals were higher, led by copper (+1.2%) and lead (+1.2%), with zinc and tin up by 0.8% and 0.1% respectively.

Looking ahead, the seasonally stronger demand in China witnessed during the second quarter of the year is likely to underpin other metals prices too. SHFE rebar prices were up 2.2% at 3,550 yuan ($564) per tonne, while the Dalian Commodity Exchange’s September iron ore contract is up 2% at 476.50 yuan per tonne.

In equities, Asian indices were mostly lower on Monday following a weaker performance in the western markets at the end of last week. The Dow Jones lost around 201 points on Friday, while the Standard & Poor’s 500 Index edged below 2,700 points again. In Asia today, Japan’s Nikkei Index declined by 0.33% and Hong Kong’s Hang Seng Index was down by 0.35%, however the ASX 200 Index in Australia bucked the trend with a gain of 0.29%.

Overnight economic data was light with Japan’s flash manufacturing purchasing managers’ index (PMI) coming in at 53.3, compared with an expected print of 53.4. Later, the market will focus on manufacturing PMI data out across Europe and the US, as well as US existing home sales.

Based on recent price moves, the base metals are trading on the back of their own individual fundamentals. Worries over a supply-crunch in the aluminium market should continue to support the light metal prices, while the rest of the base metals will remain well supported by seasonal pick-up in Chinese demand. The pullback in LME nickel could continue until the metal can find a price equilibrium but we expect dip-buying to resume at a later stage.

With most of the negative risk events priced in, the base metals complex can take comfort that global risk appetite is on the mend. US Treasury Secretary Steven Mnuchin hinted that he is considering a trip to China and is “cautiously optimistic” that the US and China can reach an agreement over the two nations’ recent trade spat.

Easing trade and geopolitical tensions are taking its toll on the demand for haven assets. Clearly the strength in the dollar index is also a contributory factor, after most US Federal Reserve speakers last week maintained the hawkish view that the US economy is strong enough to warrant another interest rate increase. The CME Group’s FedWatch tool recently pointed to a 98.4% probability that interest rate target will move in June from the current rate of 1.5%-1.75% to 1.75%-2%.

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