METALS MORNING REPORT 27/12: Steady tone continues as markets swing into life

Base metals prices trading on the London Metal Exchange are in mixed mood so far on Wednesday December 27, as trade resumes following the Christmas holiday, with lead leading with a gain of 1.2%, followed by copper (+0.8%) and tin (+0.3%), while aluminium, zinc and nickel are in negative ground with the latter down 1.5%.

Trading volumes have been high considering the generally thin trading nature of the interim Christmas/New Year period, with 10,575 lots traded as of 07.40 am London time. This comes after a steady, albeit thin trading day on Tuesday that saw Comex copper futures for March delivery close with a gain of 0.9%.

In the precious metals sphere palladium is leading the pack, with the metal up 1%, trading above $1,060 per oz as the metal continues to advance towards its all-time high at $1,110 set in January 2001. As a result palladium’s price premium to sister metal platinum has widened to over $140 per oz. The rest of the metals are reflecting the positive tone with platinum up 0.6%, followed by silver (0.3%) and gold (0.2%). This follows a solid performance on Tuesday where palladium closed up by 1.5% and silver with a 1% gains, and platinum and gold posted 0.6% gains.

On the Shanghai Futures Exchange today, base metals prices are mixed with aluminium and lead in positive ground while the rest of the metal are down by 0.6% on average.

In other metals in China, iron ore prices are down by 1.1% at 515 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices are up by 0.5%.

In wider markets, spot Brent crude oil prices have spiked to a two-year high at $66.94 per barrel following an explosion on a Libyan pipeline.

Equities in Asia today are mixed, with the CSI 300 down by 1.5%, while the rest are firmer: Hang Seng (0.1%), Kospi (0.4%), Nikkei (0.2%) and ASX 200 (0.1%).

This followed a mixed performance by the Dow Jones yesterday, which closed down 7.8 points or 0.03% at 24,746.21.

In the currencies the dollar is trading slightly lower again its major pairs as markets absorb last week’s US tax reforms.

Economic data overnight showed housing starts in Japan fell 0.4% year on year in November, far slower than October’s 4.8% decrease. US consumer confidence is in focus later today. The Conference Board Consumer Confidence Index is expected to moderate slightly in December to 128.2 after rising in November to 129.5 – the highest since December 2000 – from October’s 126.2. US pending home sales for November are also scheduled.

Expectations for stronger global growth continue to fuel bullish sentiment in the industrial commodities and limit downside corrections to dip-buying opportunities. But recent data such as the latest Chinese trade figures suggest that while supportive, the underlying fundamentals are not as tight as headline figures suggests, and that further consolidation may be necessary before prices can advance to fresh highs on a sustainable basis.

We remain quietly bullish and continue to expect range-trading in high ground; it looks as though the base metals could put in a strong finish to 2017.

The precious metals’ rebounds are looking robust, which in the case of palladium is driven by persistent fundamental tightness, as implied by its backwardated forward curve. The scale of speculative short exposure, particularly in silver, suggests they could have further room to rally. However the absence of fresh investment demand reflects shifting appetite for haven-assets, which could be a headwind across the longer term.

Date  Currency Economic Agenda Actual Expected Previous 
Wednesday    27 Dec JPY Housing Starts y/y -0.40% -2.60% -4.80%
GBP High Street Lending   40.6K 40.5K
USD CB Consumer Confidence   128.2 129.5
USD Pending Home Sales m/m   -0.50% 3.50%