METALS MORNING VIEW 06/09: Metals prices consolidate while they wait for developments in broader markets

Three-month base metals prices on the London Metal Exchange were on divergent paths this morning, Thursday September 6, after a mixed performance on Wednesday.

Zinc led on the upside with a 0.9% rebound, while nickel remained under pressure with a 0.5% fall. Lead was up by 0.3% while the rest were little changed, with copper prices at $5,883 per tonne.

Volume across the complex has been above average with 7,399 lots traded as at 06.40am London time.

Palladium continues to outshine the other precious metals with spot prices up by 0.3% at $974.80 per oz, while spot gold prices were unchanged at $1,196.57 per oz and silver and platinum prices were off by 0.1%. The gold/silver ratio is at 1:84 – it was last at this level in December 2008.

In China, there were more base metals prices in positive territory than in negative territory on the Shanghai Futures Exchange, with the October zinc contract up by 2% and the most actively traded October copper contract up by 0.9% at 47,700 yuan ($6,978) per tonne. The November nickel and October aluminium contracts were up by 0.3% and 0.2% respectively, while the October lead and January tin contracts were down by 0.2% and 0.4% respectively.

Spot copper prices in Changjiang were up by 0.6% at 47,840-48,030 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 8.11 – the rising ratio suggesting LME copper prices are leading the weakness compared with SHFE copper prices.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was up by 1.7% at 495 yuan per tonne. On the SHFE, the January steel rebar contract was up by 1.2%, while the December gold and silver contracts were up by 0.5% and 0.3% respectively.

In wider markets, spot Brent crude oil prices have edged higher again and were recently quoted at $77.20 per barrel, up by 0.09% this morning. The yield on US 10-year treasuries was firmer at 2.9090%, as was the German 10-year bund yield at 0.3815%.

Asian equity markets were weaker on Thursday as emerging market and US trade concerns persisted: Nikkei (-0.35%), the ASX 200 (-1.24%), Kospi (-0.16%), the Hang Seng (-1.13%) and the CSI 300 (-0.70%). This follows a mixed performance in western markets on Wednesday; in the United States, the Dow Jones closed up by 0.09% at 25,974.99, while in Europe the Euro Stoxx 50 closed down by 1.30% at 3,315.62.

The dollar index is consolidating after its recent rebound and was recently quoted at 95.16. With the dollar paused, the pressure on other markets has eased. We see key resistance at 95.70 and support at 94.43.

With the dollar consolidating, so are most of the other major currencies we follow: sterling (1.2904), the euro (1.1624), the yen (111.34) and the Australian dollar (0.7169).

The yuan is treading water around recent levels and was recently quoted at 6.8369 and most of the emerging market currencies we follow are consolidating after their recent significant weakness.

The economic agenda is focused on the US today, although earlier there was data on German factory orders that fell 0.9%, but that was after a 3.9% decline previous and it is an erratic data series. Data out later includes Challenger job cuts, ADP non-farm employment change, revised non-farm productivity and labor costs, initial jobless claims, final services purchasing managers’ index, factory orders and crude oil inventories. In addition, US Federal Open market Committee Member John Williams is speaking.

For the most part base metals’ prices are consolidating after the second-half of August rebounds and it is only nickel that has extended lower. Key now will be whether the metals are seen to build bases above the August lows, if they do then physical buyers may be more confident to do more pricing to take advantage of the weaker prices. If the downside then looks limited it could start to prompt short-covering.

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.

Gold prices have followed in the tracks of the base metals and prices are consolidating above recent lows, as are platinum prices, while palladium prices have rebounded strongly and are holding on to their gains. Silver prices have continued to tumble, the put in a low on Wednesday at $14.008 per oz, which is just 2.7% above the December 2015 low. At these price levels in gold and silver, investors may well see bullion as a relatively cheap haven asset, should they need one.

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