METALS MORNING VIEW 07/12: Metals prices up after broader markets turn firmer

Three-month base metals prices on the London Metal Exchange were up across the board on Friday December 7, with average gains of 0.6%. But trading remained choppy while market participants await greater direction.

The three-month zinc price was up the most this morning, with a 1.2% gain to $3,642 per tonne, and looks well placed to push higher. The three-month copper price – which has fallen the most this week – has run into scale-down buying and was up by 0.4% at $6,159 per tonne.

Volume across the complex has been average with 5,405 lots traded as at 7.28am London time.

Palladium prices were down by 1% at $1,197.50 per oz this morning – prices are correcting having earlier in the week climbed above the gold price. The rest of the complex was little changed, with the gold price up by 0.1% at $1,238.56 per oz.

In China this morning, the January contract prices for base metals on the Shanghai Futures Exchange were mixed; nickel was down by 1.3%, zinc was up by 2.1%, aluminium was down by 0.2%, while the rest were up by an average of 0.2%. The SHFE January copper contract was recently at 49,190 yuan ($7,146) per tonne.

Spot copper prices in Changjiang were up by 0.1% at 49,260-49,600 yuan per tonne and the LME/Shanghai copper arbitrage ratio was little changed at 7.99.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was up by 0.7% at 475 yuan per tonne. On the SHFE, the May steel rebar contract was down by 0.1%.

In wider markets, spot Brent crude oil prices were weaker, off by 1.04% at $59.59 per barrel as the Organisation of the Petroleum Exporting Countries (Opec) struggled to agree an output cut. The yield on US 10-year treasuries was weaker at 2.8730% and the yield on the US 2-year and 5-year treasuries were at 2.7437% and 2.7348% respectively. The German 10-year bund yield was also weaker at 0.2350%.

Asian equity markets on Friday were mixed: the Nikkei (0.82%), the ASX 200 (0.42%), the Kospi (0.34%), the CSI 300 (flat) and the Hang Seng (-0.21%). The weakness in equities does seem to have been a drag on the brighter outlook from last weekend’s Group of Twenty (G20) meeting, so a firmer tone in equities may lend support to the metals.

This morning’s performance follows further weakness in US markets on Thursday; in the United States, the Dow Jones closed down by 0.32% at 24,947.67, while in Europe, the Euro Stoxx 50 was down by 3.31% at 3,045.94. A late rally in the US helped reduce earlier losses.

The dollar index has turned sideways again and was recently quoted at 96.83. Given the weaker yields it is surprising that it is now falling. The other major currencies we follow are either consolidating or slightly firmer: euro (1.1369), sterling (1.2758), the Australian dollar (0.7210) and the yen (112.78).

The rebound in the yuan seen on Monday and Tuesday has halted for now, with the currency recently quoted at 6.8826, while the other emerging market currencies we follow are mixed.

The economic agenda is busy today, with key data on French and German industrial production, Italian retail sales, EU employment change, the US monthly employment report, University of Michigan consumer sentiment and inflation expectations. In addition, US Federal Open Market Committee member Lael Brainard is speaking.

This week started on an optimistic note following the trade developments that emerged from the G20 meeting, but broader concerns about equity and bond markets have led to considerable risk-off and in that environment, the base metals prices have returned to their sideways trading ranges.

Underlying support now seems in place; the two weaker metals of late, aluminium and nickel, have not set fresh lows and the likes of zinc and lead are well placed to try higher. We still feel that the trade truce offers an opportunity for stronger growth but it looks as though the market is waiting for evidence of this before it restocks.

Gold prices are also well placed to extend gains, the market is now trending higher and weaker US yields should help in that matter and that could accelerate if the dollar starts to weaken too.

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