METALS MORNING VIEW 05/12: Metals prices under pressure as support starts to give way

Base metals prices on the London Metal Exchange are for the most part weaker this morning, Tuesday December 5, with lead the only metal showing any strength - its prices are up by 0.2%. The rest are down by an average of 0.7%, led by a 1.8% fall in nickel prices. Three-month copper prices are down by 0.9% at $6,743 per tonne.

Volume has been above average with 9,987 lots traded as of 07.15am London time.

This follows a generally bearish day on Monday that saw slightly weaker prices for copper and aluminium, while lead and zinc prices fell an average of 1.8% and nickel and tin prices were up by around 0.5%.

Precious metals are little changed but are on a back footing this morning, with gold, silver and platinum prices off by 0.1%. Meanwhile, palladium prices are up by 0.2% but back below the $1,000 per oz level - last at $998.30 per oz. This follows a day of weakness on Monday that saw spot bullion prices close down by an average of 0.3% and platinum and palladium prices close down by 1.2% and 2.3% respectively.

On the Shanghai Futures Exchange today, all the base metals prices are lower by an average of 0.9%. Tin prices are the most resilient with a 0.5% drop, while copper prices lead the decline with 1.3% fall to 52,590 yuan ($7,942) per tonne. Spot copper prices in Changjiang are down by 0.2% at 53,150-53,350 yuan per tonne and the LME/Shanghai copper arbitrage ratio is at 7.81, compared with 7.80 on Monday.

Iron ore prices in China today have edged lower after what had been a strong performance - prices are down by 0.5% at 539.50 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices are off by 0.7%, while gold and silver prices are both off by 0.2%.

In international markets, spot Brent crude oil prices are down by 0.43% at $62.13 per barrel. The yield on US ten-year treasuries are slightly weaker at 2.39% and the German ten-year bund yield has firmed to 0.35%.

Equities in Asia this morning are mixed: the CSI 300 is up by 0.53%, the Kospi is stronger by 0.34%, while the Nikkei is down by 0.37%, the Hang Seng is off by 0.85% and the ASX 200 is weaker by 0.23%. This follows strength in western markets on Monday where in the United States the Dow Jones closed up by 0.24% at 24,290.05 and in Europe where the Euro Stoxx 50 closed up by 1.38% at 3,576.22.

The dollar index at 93.22 is holding above support, but is struggling to establish itself above the 20 day moving average. The jury is once again out as to whether the September to November strength in the dollar is a counter-trend move within this year’s downward trend, or whether it is the start of a longer term uptrend. For now the dollar remains vulnerable, but we are still on the side of expecting the dollar to rise given the likelihood of interest rate differentials. The euro at 1.1861 is consolidating in fairly high ground, sterling has dropped to 1.3417 as Brexit talks disappointed, the yen at 112.65 is in mid-ground, while the Australian dollar at 0.7644 has turned higher.

The yuan at 6.6120 is flat, while the other emerging currencies we follow are for the most part showing some strength, especially the rand and ringgit.

Today’s economic agenda shows China’s Caixin services purchasing managers’ index (PMI) climbed to 51.9 from 51.2 previously, Japan’s consumer price index (CPI) was unchanged at 0.5% and Spanish services PMI dipped to 54.4 from 54.6. Later there is more services PMI data out across Europe and the United States. Other data includes EU retail sales and revised gross domestic product as well as US trade balance and economic optimism. In addition there is an EU economic and financial affairs council (Ecofin) meeting.

Copper prices have struggled to rebound and are falling as we write. Prices have now broken support at $6,700 per tonne, which opens the way for prices to fall further. Aluminium and nickel prices showed weakness last week, leaving lead, zinc and tin still holding above support. For now with heavy-weights aluminium and copper prices breaking lower and nickel weaker too, it does look as though the others may follow, even though lead and zinc have strong fundamentals. Concerns about slower growth in China seem to be leading to long liquidation so prices may well pull back further, but we do expect the overall bullish medium-to-longer term fundamentals to lead to scale-down buying.

In the precious metals, silver prices lead on the downside, but gold and platinum prices are also showing weakness and even mighty palladium prices have slipped below the $1,000 per oz level. The current environment with strong equities and a low level of geopolitical fear, are not bullish for gold prices. It may well take a pick-up in haven demand to lead to a rebound - this could be seen from either a pick-up in geopolitical tensions over North Korea, or should equities start to correct.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

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