METALS MORNING VIEW 06/07: No pause in downdraft hitting metals prices

Three-month base metals prices on the London Metal Exchange were mixed on the morning of Friday July 6, with nickel (-0.8%), zinc (+1.1%) and aluminium (+0.3%) the main movers, while copper at $6,326 per tonne and tin at $19,455 per tonne were little changed. That said, copper did spike down to a low of $6,221.50 per tonne at around 4am London time.

Volume has been high with 16,267 lots traded as at 7:28am London time.

This follows a similarly mixed performance on Thursday that saw copper, aluminium, tin and zinc prices fall by between 0.6% and 1.1%, while lead and nickel prices rallied by 1.3% and 0.4% respectively.

Gold, silver and palladium prices were little changed, with spot gold prices at $1,256.40 per oz, while platinum prices were rebounding with a 0.5% gain to $843.50 per oz.

In China, copper and aluminium prices were the main movers on the Shanghai Futures Exchange, with the most-traded August contract for copper down by 0.7% at 49,340 yuan ($7,432) per tonne and the most-traded August contract for aluminium up 0.6% by at 14,105 yuan per tonne. The rest of the complex was little changed.

In other metals in China, the September iron ore contract on the Dalian Commodity Exchange was up by 0.9% at 459.50 yuan per tonne. Meanwhile on the SHFE, the October steel rebar contract and the December gold and silver contracts were all up by 0.1%.

Spot copper prices in Changjiang were down by 1.5% at 48,560-49,320 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 7.80.

In wider markets, spot Brent crude oil prices were off by 0.45% at $77.19 per barrel this morning. The yield on US 10-year treasuries, recently quoted at 2.8418%, continued to weaken, as did the German 10-year bund yield at 0.3015%.

Asian equity markets were firmer on Friday: Nikkei (+1.12%), Hang Seng (+0.23%), CSI 300 (+0.68%), the Kospi (+0.68%) and the ASX200 (+0.91%). This follows a stronger performance in western markets on Thursday, where in the United States the Dow Jones closed up by 0.75% at 24,356.74, and in Europe where the Euro Stoxx 50 closed up by 0.85% at 3,440.92.

The dollar index at 94.28 is continuing to weaken after establishing a double high at 95.54 (June 21 and 28). The euro is firmer and is getting some lift off low ground at 1.1711, as is the Australian dollar (0.7405), while sterling (1.3232) and the yen (110.56) are consolidating.

The continuing tensions over trade with the US has weakened the yuan in the past few weeks, but in recent days it has started to consolidate lower off the lows – it was recently quoted at 6.6519 after a low of 6.7167 on July 3. With tariffs on $34 billion of trade now in position, we need to see what China’s response is. Most of the emerging currencies we follow are also consolidating after recent weakness.

Economic data already out this morning shows Japan’s household spending drop 3.9%, after a previous drop of 1.3%, but average cash earnings climbed 2.1% after a 0.6% rise previously and leading indicators edged up to 106.9% from 106.2%. Data out later includes German industrial production, French trade balance, UK house prices and Italian retail sales. US data includes the employment report, trade balance and natural gas storage.

There seems no letup in the weakness across most the base metals and in this ‘falling knife’ environment we would wait for a buying opportunity. Markets are likely to remain nervous waiting to see how countries retaliate against the US tariffs. Given the extent of the price corrections, there may well be considerable pent-up demand to follow.

The precious metals have been hit hard on the downside but they appear to have run into bargain hunting. The fact the dollar’s climb has halted for now is no doubt giving them some support. Given prices have corrected as much as they have, and US treasury yields have fallen, the lower prices might make gold look more attractive the next time a haven is required.