METALS MORNING VIEW 18/01: Base metals hold up well on LME, less so on SHFE

Base metals prices are for the most part firmer this morning, Wednesday January 18, with prices up an average of 0.4%.

Three-month copper and aluminium prices are down 0.1%, with copper prices at $5,772 per tonne, the rest of the complex are seeing gains of between 0.3% for lead prices and zinc prices that are up 1.1% - volume has been average with 5,129 lots traded as of 06:18 GMT.

This performance is stronger than Tuesday's, when copper, nickel and zinc prices were down an average of 1.2%, aluminium and lead prices were up around 0.7% and tin was little changed.

Precious metals this morning are slightly weaker with prices all off around 0.2%, with gold prices at $1,212.05 per oz, this after a generally bullish day on Tuesday, that saw silver rally 2.1% and gold prices close up 1% at $1,214.95 per oz.

In China this morning, the base metals are for the most part weaker with prices down an average of 0.5%, copper prices are off 1.6% at 46,580 yuan per tonne, nickel prices are off 1% and lead is down 0.7%, aluminium prices are off 0.3%, tin is little changed, while zinc prices are bucking the trend with a 0.4% rise. Spot copper prices in Changjiang are down 2% at 46,170-46,370 yuan per tonne, the spread with the March date is showing an equivalent of $30 per tonne contango, while the LME/Shanghai copper arb is at 8.07.

In other metals in China, May iron ore prices are down 2.5% on the Dalian Commodities Exchange, on the Shanghai Futures Exchange steel rebar prices are down 1.4%, gold prices are little changed and silver prices are up 0.1%. In international markets, Brent crude oil prices are up 0.4% at $55.66 per barrel.

Equities were weaker on Tuesday with the Euro Stoxx 50 and the Dow closing down 0.3%, with the latter at 19,826.77. Asia for the most part is firmer with the Nikkei up 0.4%, the Hang Seng is up 1.2%, the CSI 300 is up 0.4%, the ASX 200 is down 0.4% and the Kospi is off 0.1%. So for now, British prime minister Theresa May's strong Brexit speech has done little to rattle Europe's markets, we wait to see if markets glide through US president-elect Donald Trump's inauguration as smoothly.

In FX, the dollar index weakened further on Tuesday, falling to a fresh low of 100.27, it was recently quoted at 100.59, the euro is at 1.0688, the sterling rallied 2.9% on Tuesday, it was recently quoted at 1.2348, the Australian dollar is stronger at 0.7547 and the yen is firmer, too, at 113.30. The yuan is also firmer at 6.8420 and the other emerging market currencies we follow are consolidating with a slight upward bias – which is constructive as it shows they are not too fearful about Donald Trump taking office.

The economic diary is busy with CPI data out in Germany, the EU and USA, there is data on UK employment/unemployment situation, US data on industrial production, capacity utilisation, NAHB housing market index, the Beige book and TIC long term purchases. In addition, US Federal Open Market Committee member Neel Kashkari and US Fed Chair Janet Yellen are speaking.

The base metals have generally been consolidating this week and ahead of the US presidential inauguration which is not so surprising, but we note that dips are still running into support/buying, which suggests underlying sentiment remains bullish and there does not seem to be much appetite to short the metals. As such, with markets generally appearing to be covered in Teflon, in that potentially bearish news is not sticking to them (look at the impact on nickel prices that the change in Indonesia's export rules have had, how aluminium prices continue to rise despite hefty stock inflows and the limited negative reaction in EU markets to Tuesday's hard Brexit talk). As such, it seems that money is still flowing into the metals as start-of-year positioning continues and as the markets are optimistic about the outlook for 2017. We wait to see if this momentum is robust enough to absorb any controversial talk from Donald Trump when he takes power and can continue through the Chinese New Year. For now it seems the market will remain bullish unless something major knocks confidence.

Gold prices remain upbeat, silver prices are stronger, while the PGMs are consolidating. Although other metals and equities are not showing much weakness, gold prices are managing to rally, too. This we think highlights that although other markets remain bullish, some investors are still buying gold as an insurance in case things do not work out smoothly.


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