Metals mixed, outlook remains weak

FastMarkets

Base metals on the London Metal Exchange are up across the board this morning, Thursday June 15, with prices up by an average of 0.6%. The move has happened at a higher than average volume of 8,685 lots as of 07:03 BST.

Zinc prices lead the gains with a 1.3% rally in three-month prices to $2,516 per tonne, tin is the laggard with a 0.1% gain, while copper prices are up 0.6% at $5,704 per tonne. On Wednesday, prices were split with copper, aluminium and tin closing down an average of 0.9%, while nickel, lead and zinc prices were up 0.7%.

Precious metals are little changed to firmer this morning, palladium leads the gains with a 0.6% rally to $863.30 per oz, silver prices are up 0.3% while gold and platinum are little changed at $1,263 per oz and $863 per oz, respectively. This comes after a mixed performance on Wednesday that saw palladium prices fall 2.8%, while platinum prices rallied 1.1%, gold prices fell 0.3% and silver prices closed up 0.7% higher.

In Shanghai this morning, the metals on the Shanghai Futures Exchange (SHFE) are split; aluminium prices lead on the downside with prices off 1.2%, with tin prices off 0.2% and copper prices off 0.3% at 45,650 yuan ($6,717) per tonne, while lead leads on the upside with a 1.5% gain, nickel prices are up 1.1% and zinc prices are up 0.9%. Spot copper prices in Changjiang are down 0.1% at 45,400-45,600 yuan per tonne and the LME/Shanghai copper arb ratio has firmed to 8.01.

In other metals in China, September iron ore prices on the Dalian Commodity Exchange are up 1.5% at 427 yuan per tonne, while on the SHFE, steel rebar prices are up 3% while gold prices are down 0.3% and silver prices are up 0.7%.

In international markets, spot Brent crude oil prices are up 0.3% at $47.04 per barrel and the yield on the US ten-year treasuries has fallen to 2.14%, suggesting the markets are following US consumer price index (CPI) data, which came out weaker on Wednesday, rather than the US Federal Reserve’s guidance. Yesterday, the US Federal Open Market Committee (FOMC) raised rates by 25 basis points to 1.25% and suggested they expect another 25 basis point rise later in the year and were looking to start reducing their balance sheet later in the year.

Equities ended Wednesday mixed with the Euro Stoxx 50 closing down 0.3%, while the Dow closed up 0.2% at 21,374.56. In Asia this morning markets are weaker, the Nikkei is down 0.3%, the Hang Seng is off 0.9%, the CSI 300 is off 0.2%, the ASX200 is off 1.2% and the Kospi is down 0.5%. As such, it looks as though the broader markets see the combination of the lower US CPI and higher interest rates as a headwind.

The dollar index spiked lower to 96.32 after the CPI data on Wednesday, but rebounded after the FOMC decision and statement – it was recently quoted at 96.92, but continues to look heavy. The euro is consolidating at 1.1218, as is sterling at 1.2749, the yen is trending lower at 109.65, while the Australian dollar is strong at 0.7610.

The yuan at 6.7938 remains firm but flat and most of the other emerging market currencies we follow are for the most part flat with a slight firmer bias, suggesting they have taken the latest rate rise in their stride and perhaps the weak CPI data has given them confidence that the Fed may turn more dovish.

The economic agenda is busy with French CPI, UK retail sales, the EU trade balance, an update on UK monetary policy as well as a host of US data including initial jobless claims, Empire State and Philly Fed manufacturing indices, import prices, industrial production, capacity utilisation, NAHB house marketing index, natural gas storage and TIC long term purchases. In addition Bank of England governor Mark Carney is speaking this evening – see table below for more details.

The base metals prices continue to test lower and are generally lingering around in low ground and therefore remain vulnerable. Bouts of buying tend not to attract much follow through buying but at least there are bouts of buying around, as seen in zinc, lead and nickel. With data mixed-to-weak with better than expected data infrequent, it does look as though consumers are content to live hand-to-mouth and feel in no need to restock. So until the news flow brightens up, this sideways to lower direction in metals prices may continue. Based on fundamental outlook we remain mildly bullish for the medium to longer term, i.e. we are not bearish per se, but are having to wait longer than expected for an upturn.

Palladium prices are under pressure as they correct their recent run away rally. We would let this pullback run its course but expect dips will be supported closer to $800 per oz. Gold, silver and platinum prices are also consolidating recent gains and we would expect good underlying support. Yesterday’s US CPI data gave prices a boost, but the market has failed to hold on to the gains, suggesting the buying interest is thin.

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