METALS MORNING VIEW 04/09: Metals remain in consolidation mode

Three-month base metals prices on the London Metal Exchange were mixed this morning, Tuesday September 4, with price changes ranged between up by 0.7% for aluminium and down by 0.3% for nickel.

Copper and zinc prices were up by 0.2%, with the former at $5,959 per tonne, while lead and tin prices were off by 0.2%.

Volume has been low with 4,568 lots traded as at 06.28am London time.

Precious metals prices were for the most part little changed, with the exception of platinum where prices were up by 0.6% at $790 per oz. Gold prices were little changed at $1,200.60 per oz, silver prices were down 0.1% and palladium prices were up by 0.1%.

In China, the base metals prices on the Shanghai Futures Exchange were for the most part lower – the exception once again being lead, the October contract price of which was up by 0.6%. The others were weaker, led by a 1.2% decline in October zinc, while the rest were down by between 0.9% for November zinc and 0.4% for the most actively traded October copper contract, which was recently quoted at 47,980 yuan ($7,027) per tonne.

Spot copper prices in Changjiang were down by 0.2% at 48,160-48,260 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 8.04.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was down by 0.1% at 482.50 yuan per tonne. On the SHFE, the January steel rebar contract was up by 0.7%, while the December gold and silver contracts were down by 0.3% and 0.4% respectively.

In wider markets, spot Brent crude oil prices are moving higher again and were recently quoted at $78.14 per barrel, up by 0.2% this morning. The yield on US 10-year treasuries was at 2.8638%, while the German 10-year bund yield was easier at 0.3318%.

Asian equity markets were mixed on Tuesday: Nikkei (-0.05%), the ASX 200 (-0.35%), Kospi (+0.31%), the Hang Seng (+0.28%) and the CSI 300 (+0.33%). This follows a slightly firmer performance in western markets on Monday, where in Europe the Euro Stoxx 50 closed up by 0.06% at 3,394.99, while US markets were closed for Labor Day.

The dollar index is rising again having rebounded on August 31 and was recently quoted at 95.20. The stronger dollar is once again putting downward pressure on metals prices. On the chart, the move above 95.66 on August 10 suggested the index had triggered a bullish Head-and-Shoulders Pattern, with a rebound now underway we wait to see if the index can climb back above that breakout level.

With the dollar stronger, the other major currencies we follow are for the most part consolidating: sterling (1.2865), the euro (1.1608), the yen (111.14), although the Australian dollar is firmer 0.7232

The yuan is slightly firmer and was recently quoted at 6.8205, but most of the emerging market currencies we follow are weakening. Although the problems in a number of the emerging markets are country-specific in the likes of Argentina, Turkey, South Africa and Brazil, there is a danger that these problems could cause nervousness across other emerging markets too.

The economic agenda is busy today, UK British Retail Consortium (BRC) increased 0.2%, which was lower than expected and Japan’s monetary base climbed 6.9%, which was better than expected. Data out later includes Spanish unemployment change, the United Kingdom’s construction purchasing managers’ index (PMI) and inflation report hearing, the European Union’s producer price index (PPI), as well as US data including final and ISM manufacturing PMIs, construction spending, ISM manufacturing prices, economic sentiment and total vehicle sales.

The rallies off the August lows in the base metals have for the most part halted and prices are consolidating. There are two exceptions – lead prices have been extending gains and nickel prices are extending losses. The underlying factors remain little changed, the metals are being jostled by the cross currents of uncertainty over trade disputes, a pick-up in post-summer physical interest, a stronger dollar and large presence of large short positions.

Overall, we do favor the upside from these levels, but the market may need to build more of a base before buyers are prepared to chase prices higher.

Palladium prices are rallying robustly, while the other precious metals are following the path of the base metals, which suggests they are also following the dollar and overall market sentiment.

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