High volume in copper as volatility picks-up, gold prices consolidate

The base metals put in a solid performance on Tuesday with gains of between 1.1 percent for tin and 4.1 percent for nickel, with copper up three percent at $4,885.50. Zinc set fresh highs for the year, as did nickel – aluminium, lead and tin got closer to doing so. Physical demand and economic data are not strong, suggesting the strength is more fund orientated, but momentum may well carry them further. The precious metals were mixed, given strength in other asset classes it is not surprising that demand for gold as a safe-haven is waning, gold prices closed down 1.4 percent at $1,333.70, silver was off 0.4 percent, while the PGMs were mixed.

It has been a volatile start this morning, especially for copper and nickel, copper prices have been down 0.3 percent and up as much as three percent to a high of $5,032, it is last up 1.5 percent at $4,961 – volume on copper has been massive with 13,841 lots traded as of 07:08 BST. Nickel has been up as much as 2.3 percent and down as much as 1.9 percent, last off 0.5 percent, while aluminium has set a fresh high for the year, if only by a dollar. As of 07:08 BST, the metals are up an average of 0.3 percent, with volume of 23,627 lots. It looks as though the run up in copper has triggered stops, with some scale up selling taking advantage of prices above $5,000.

Precious metals are for the most part firmer, platinum is off 0.5 percent at $1,084.80, palladium is up 1.9 percent at $635, while silver is up 0.7 percent at $20.30 and gold prices are up 0.3 percent at $1,338.05.

In Shanghai, copper is up 5.4 percent at Rmb 39,070, nickel is up 4.6 percent, zinc, lead and tin are up 2.1 percent, with aluminium up 0.8 percent. Spot copper in Changjiang is up 4.7 percent at Rmb 38,700-38,900, the spread has swung to a contango from a backwardation, suggesting more forward buying than spot buying, while the LME/Shanghai copper arb ratio has run up to 7.87.

In other metals in China, iron ore prices on the Dalian Exchange rose 5.5 percent to Rmb 464, reaching an 11-week high, steel rebar is up 3.3 percent, silver prices are up 0.2 percent and gold prices are retreating, down 1.4 percent. In international markets, Brent crude oil is last at $47.85.

Equities were up beat yesterday with the Euro Stoxx 50 up 1.7 percent and the Dow was up 0.7 percent, it reached a record high yesterday and Asia is upbeat with the Nikkei up 0.8 percent, the Hang Seng is up 0.4 percent, the CSI 300 is up 0.4 percent, the ASX 200 is up 0.7 percent and the Kospi is up 0.7 percent. So risk-on is very much the order of the day.

In FX, the dollar index remains around the 96 level – it is one of the more stable assets, sterling has been rebounding, last at 1.3285, the euro is flat at 1.1065, the yen is weaker at 104.20 and the aussie is trending higher, last at 0.7587.

In emerging market currencies, the yuan is just off lows at 6.6855, the rest of the EM currencies we follow are consolidating in relatively high ground.

Japan’s revised industrial production deteriorated to show a 2.6 percent decline, previously -2.3 percent, later we get France CPI, China’s trade balance, Bank of England credit conditions survey, EU industrial production, with US data including import prices, crude oil inventories, the Beige book and the Federal budget balance – see table below for more details.

With aluminium now joining zinc, nickel and tin to set fresh highs for the year, the base metals complex is bullish, we now wait to see if copper and lead follow. The buying seems to be based on a ‘value-grab’, commodities are relatively low compared with recent years, while equities and bonds are at record levels. The physical metals market remains generally quiet suggesting the run up in prices is more speculative orientated than trade-demand driven. We would run with the rallies for now, but be aware that the rallies are not that fundamentally sound. That said, there are still some large short positions held by funds that could fuel further short-covering. LME COTR data shows that copper, lead and aluminium still have relatively low levels of gross long positions.

Given the ramp-up in base metals and equities, gold and silver prices may well suffer some long liquidation/profit-taking, while the PGMs may well join the industrial metals in their move higher, especially with wage negotiations continuing in South Africa. That said, if investors do not have much faith in the sustainability of the base metals and equity rallies, then maybe gold will continue to be bought.

 

Overnight Performance
BST 07:08 +/- +/- % Lots
Cu 4961 75 1.5% 13841
Al 1684 9 0.5% 3243
Ni 10375 -55 -0.5% 2924
Zn 2196.5 3.5 0.2% 2934
Pb 1882 5 0.3% 639
Sn 17905 -10 -0.1% 46
Average   0.3%       23,627
Gold 1338.05 4.35 0.3%
Silver 20.3 0.14 0.7%
Platinum 1084.8 -5.2 -0.5%
Palladium 635 12 1.9%
Average PM   0.6%

 

SHFE Prices 07:11 BST RMB Change % Change
Cu 39070 2010 5.4%
AL 12665 100 0.8%
Zn 17095 355 2.1%
Pb 13420 280 2.1%
Ni 83390 3650 4.6%
Sn 121530 2540 2.1%
Average change (base metals) 236.5   2.9%
Rebar 2572 81 3.3%
Au 289.65 -4.05 -1.4%
Ag 4515 9 0.2%

 

Economic Agenda
BST Country Data Actual Expected Previous
5:34am Japan
Revised Industrial Production m/m
-2.6% -2.2% -2.3%
 7:45am France
French Final CPI m/m
0.2% 0.2%
Tentative China
Trade Balance
320B 325B
Tentative China
USD-Denominated Trade Balance
46.0B 50.0B
9:30am UK
BOE Credit Conditions Survey
10:00am EU
Industrial Production m/m
-0.8% 1.1%
Tentative Germany
German 10-y Bond Auction
0.01|1.1
1:30pm US
Import Prices m/m
0.6% 1.4%
3:30pm US
Crude Oil Inventories
-2.3M -2.2M
6:01pm US
30-y Bond Auction
2.48|2.4
7:00pm US
Beige Book
7:00pm US
Federal Budget Balance
24.2B -52.5B