METALS MORNING VIEW 05/01: Metals prices consolidating in high ground

Base metals prices trading on the London Metal Exchange are generally higher this morning, Friday January 5, with copper and aluminium both up by 0.1% at $7,193 per tonne and $2,248 per tonne, respectively, and the rest up by between 0.2% and 0.4%. The exception is nickel, which is down by 0.9% at $12,530 per tonne.

Volume has been average, with 6,133 lots traded as of 06:43am London time.

This follows a general day of price rebounds on Thursday. Although some metals, such as copper and tin, struggled to hold on to some of their gains, nickel, zinc and aluminium closed up 1.5%, 0.8% and 0.7% respectively.

The precious metals are consolidating this morning, with spot gold off by 0.2%  ($1,318.09 per oz) and silver off by 0.1% ($17.16 per oz), while platinum prices are up 0.3% and palladium prices are up 0.1%. This follows a strong performance on Thursday when the complex closed up by an average 0.9%, led by a 1.6% gain in palladium prices that at the day’s highs of $1,108 per oz, were $2 per oz away from matching the record highs seen in January 2001.

On the Shanghai Futures Exchange today, base metals prices are for the most part slightly firmer, led by a 0.4% gain in zinc prices, while copper prices are off 0.3% at 54,720 yuan ($8,432) per tonne, and the rest little changed. Spot copper prices in Changjiang are up 0.2% at 54,700-54,780 yuan per tonne and the LME/Shanghai copper arbitrage ratio has eased to 7.61, down from 7.64 on Thursday.

In other metals in China, iron ore prices are down by 0.5% at 536.50 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices are down by 1%, gold prices are up by 0.2% and silver prices are up by 0.1%.

In wider markets, spot Brent crude oil prices are down 0.12% at $67.85 per barrel, the yield on US 10-year treasuries is at 2.45%, and the German 10-year bund yield is easier at 0.44%.

Equities are for the most part firmer, led by a 1.26% rebound in the Kospi and a 0.89% rally in the Nikkei. The ASX 200 is up by 0.74%, the Shanghai CSI 300 is up by 0.23%, while the Hang Seng is bucking the trend with a 0.09% decline. This follows a strong performance in western markets on Thursday, where in the United States the Dow Jones closed up by 0.61% at 25,075.13 and in Europe the Euro Stoxx 50 closed up by 1.68% at 3,568.88.

The dollar index, at 91.94, is consolidating just above Tuesday’s dip to 91.75. Having broken support at 92.50 on Friday December 29, it suggests the index is now going to test the September 2017 low of 91.01. That said, with commodity prices (metals and oil) on the rise, concerns about inflation may pick-up combined with likely interest rate rises means the dollar may not stay down for long. With the dollar consolidating, the currencies are looking mixed with the euro (1.2066), sterling (1.3558) and Australian dollar (0.7842) consolidating, while the yen (113.07) is weaker. The yuan at 6.4799 has gapped higher and the emerging currencies we follow are either continuing to strengthen (rupee and ringgit), or are consolidating recent gains (rupiah, real, rand and peso) – all of which suggest investors are putting on risk.

The economic calendar is busy today: the data already out shows a decline in UK shop prices, while German retail sales jumped 2.3%, having been expected to rise 1%. Data out later include French CPI, with EU data including retail PMI, CPI flash estimates, PPI and Italian CPI. In the US the focus is on the December jobs report, but in addition to that there are data on the trade balance, ISM non-manufacturing PMI and factory orders. In addition Federal Open Market Committee member Loretta Mester is speaking. With the dollar looking vulnerable, today’s US employment report is likely to be watched closely, as are CPI data out of Europe.

After weakness and consolidation in the base metals earlier in the week, we thought yesterday’s rebound may have been stronger, but there does seem to be some hesitation in the markets. But considering many of the metals’ prices moved into fresh multi-year high ground in recent weeks, we should not be too surprised to see scale up selling. We remain quietly bullish and see the longer-term outlook as being positive, and traders may well continue to front run that.

Gold, silver and platinum prices have had strong rallies in recent weeks so consolidation is in order. While the weaker dollar is a supporting factor, the surging equity markets may well be a headwind. That being said, perhaps nervousness about overbought equities is seeing a pick-up in safe-haven buying in case other markets correct. Palladium’s rally continues, backed by fundamentals. Prices have been as high as $1,108 per oz – the high in January 2001 was $1,110 per oz. The market is vulnerable to bouts of profit taking, but the bullish fundamental look set to remain in place.