METALS MORNING VIEW 05/04: Base metals prices rebound as China returns

Base metals prices on the London Metal Exchange are getting some lift this morning, Wednesday April 5, with prices up across the board by an average of 1%, led by a 1.4% rise in nickel prices to $10,140 per tonne. Three-month copper prices are up 0.9% at $5,838 per tonne.

This firmer tone comes after a general up day on Tuesday April 4 when prices rebounded an average of 0.8% – so once again it does look as though the weaker prices on Monday have attracted dip-buying.

Gold and silver prices are little changed this morning, down an average of 0.1% with spot gold prices at $1,255 per oz, while the PGMs are slightly firmer with gains averaging 0.3%. On Tuesday, prices were also little changed with most of the precious metals up around 0.1%.

In Shanghai, the base metals have opened largely higher on the Shanghai Futures Exchange after a two-day holiday. Copper and zinc prices are down an average of 1.1%, while the rest are up between 0.3% for tin prices and 1.9% for aluminium prices. Copper prices were recently quoted at 47,430 yuan per tonne, while in Changjiang, spot copper prices are off 0.5% at 47,030-47,230 yuan per tonne. The LME/Shanghai copper arb ratio is at 8.12, meaning the arb window remains closed.

In other metals in China, September iron ore futures prices are up 1.7% on the Dalian Commodity Exchange, while on the SHFE, steel rebar prices are up 2.5%, gold prices are up 0.6% and silver prices are up 0.4%. In international markets, spot Brent crude oil prices are up 0.5% at $54.49 per barrel and the yield on the US ten-year treasuries is around 2.35%.

Equities were firmer on Tuesday with the Euro Stoxx 50 up around 0.3% and the Dow closed up 0.2%, while in Asia this morning, the Nikkei is up 0.2%, the Hang Seng is off 0.2%, the CSI 300 is up 1.1%, the ASX 200 is up 0.3% and the Kospi is off 0.2% – so a mixed picture.

The rebound in the dollar index appears to be petering out with the index at 100.52, this after a recent rebound to 100.74 from a low of 98.85 on March 27. Conversely, the euro is consolidating at 1.0674, after a low of 1.0635, the sterling has been less volatile at 1.2445, the yen is firm at 110.68, as is the Australian dollar at 0.7574. In emerging markets, the yuan is flat at 6.8780 and most other currencies are consolidating, while the rand’s recent run of weakness is starting to correct and conversely the rupee is giving back some of its recent gains.

Data out today is focused on services PMI with data out across Europe and the US, plus there is the ADP non-farm employment change, crude oil inventories and the minutes from the March US Federal Open Market Committee meeting. In addition, UK’s Monetary Policy Committee member Gertjan Vlieghe is speaking – see table below for more details.

The base metals once again seem to have run into dip-buying and the fact this has happened with the return of China from a two-day holiday is an encouraging sign, volume on the LME was also strong this morning with 15,831 lots traded as of 06:28 BST. Even nickel prices, which have been the weakest of the metals of late, are seeing a rebound, with prices climbing back above the $10,000 per tonne level. Seasonally, this quarter is a stronger time for industrial demand, generally high prices have dampened demand in the first quarter, which may have led to a degree of destocking, which in turn could lead to restocking. Aluminium prices have recently managed to set fresh highs, copper, lead and zinc prices struggled to follow suit, suggesting good overhead supply, but prices dips have been well supported, suggesting good underlying demand. In time we expect the overhead supply to be absorbed, in which case we would expect the overall up trends to continue. Nickel and tin prices have pulled back more severely, so supply seems more plentiful and that may continue to lead to underperformance compared with the other base metals.

Gold prices are consolidating in high ground, we expect them to remain firm in the run up to the French election, but other political events such as Brexit negotiations and this week’s meeting between Chinese president Xi Jinping and US president Donald Trump, also provide a level of uncertainty. Silver is following gold’s lead, while palladium prices remain bullish and platinum prices lack bullishness.

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