METALS MORNING VIEW 03/11: Metals prices generally higher after a busy week

Volume has returned to a more normal level of 6,483 lots as of 07:30 GMT, compared with an average of 13,070 lots seen over the first four days of LME Week.

This morning follows a similarly mixed performance on Thursday when lead prices dropped by 1.3% and nickel prices fell by 1.2%, while the rest were ranged between little changed and up by 0.3%.

In precious metals this morning, spot gold and silver prices are off by 0.2% and 0.3%, respectively, with gold at $$1,275.37 per oz. Meanwhile, platinum prices are off by 0.1% and palladium prices are up by 0.1%. This follows a 0.2% gain in bullion prices on Thursday, while platinum and palladium prices dropped by 0.6% and 0.5%, respectively.

Base metals prices on the Shanghai Futures Exchange are also mixed this morning with copper prices up by 0.6% at 54,510 yuan ($8,251) per tonne and nickel prices up by 0.4%, while the rest of the complex are weaker. Lead leads the decline with a 0.7% fall, followed by a 0.2% drop in tin and zinc prices and aluminium prices that are little changed. Spot copper prices in Changjiang are up by 0.3% at 54,360-54,620 yuan per tonne and the London/Shanghai copper arbitrage ratio is stronger at 7.86, showing SHFE copper prices are firmer than LME prices.

In other metals in China, iron ore prices are up by 0.6% at 439.50 yuan per tonne on the Dalian Commodity Exchange, while steel rebar prices on the SHFE are down 0.2%. Gold and silver prices on the SHFE are firmer by 0.1% and 0.3%, respectively.

In international markets, spot Brent crude oil prices are down 0.31% at $60.70 per barrel. The yield on US ten-year treasuries is weaker at 2.35%, compared with 2.37% on Thursday morning, and the German ten-year bund yield is weaker at 0.37%.

Equities in Asia are for the most part firmer with the Kospi and ASX 200 both up by 0.5%, the Hang Seng is up by 0.3%, while the CSI 300 is off by 0.1% and the Nikkei is closed. This follows a mixed performance in Western markets on Thursday where in the US, the Dow closed up by 0.35% at 23,516.26 and in Europe, where the Euro Stoxx 50 closed down by 0.23% at 3,688.80.

The dollar index at 94.78 is consolidating in high ground and continues to look well placed to push higher – today’s US employment report may be the catalyst for that. The euro at 1.1645 is consolidating in what appears to be a bear-flag, as is the Australian dollar at 0.7676; sterling has dropped to 1.3048 and the yen is looking weak at 114.12.

The Chinese yuan is weaker again at 6.6236 again and most of the other emerging market currencies we follow are consolidating after Thursday’s firmer tone.

Data out already shows a stronger than expected Chinese Caixin services purchasing managers’ index (PMI) reading of 51.2 – it was expected to rise to 50.8 from 50.6 previously.
Later, there is the United Kingdom’s services PMI and US data that includes the employment report, trade balance, final services PMI, ISM non-manufacturing PMI and factory orders. In addition, US Federal Open Market Committee member Neel Kashkari is speaking.

The base metals have had a volatile week with early strength running into selling but overall most metals are firmer today than they were a week ago. The main mover being nickel that is up by 10.3%, with zinc up by 2%, copper up by 0.5%, lead up by 0.3%, aluminium little changed and tin off by 1.1%. Although sentiment for the longer term seems to be bullish, we get the feeling that the market thinks prices have already done a lot on the upside. As such, we would not be surprised to see further consolidation for a while. What we will be watching out for is whether more longer-term investment money starts to enter the metals arena. Our view of late remains unchanged – we remain quietly bullish, but we expect trading to become choppier because prices are in high ground, so we should expect more bouts of scale-up selling along the way.

Precious metals prices have found some lift following stronger base metal and oil prices, which may suggest some pick-up in investor interest in commodity baskets, but we are not overly bullish for gold in the present climate, except for the potential escalation in geopolitical tensions.

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