METALS MORNING VIEW 09/08: Buying interest in base metals piqued

Three-month base metals prices on the London Metal Exchange were positively higher in the morning of Thursday August 9, with the complex up an average of 0.4%.

Leading the gains was LME copper, up 1.1%, followed by tin (+0.5%), lead and zinc (both up 0.4%). Meanwhile, aluminium is up 0.1%, consolidating after yesterday’s strong surge of 3.2% amid industrial action at Alcoa’s Pinjarra alumina refinery. Having vaulted above $14,000 per tonne on Wednesday August 8, the LME nickel price was unchanged at $14,035 per tonne this morning.

Trading volume as at 05:47am London time was higher too, with 6,127 lots already traded, a further sign that buying interest toward the base metals complex is on the rise.

Precious prices firm as dip-buying interest continues
The buying theme applies across the precious metals complex too, with an average gain of 0.5%. Gold and silver prices were up by 0.1% and 0.3%, while platinum and palladium were both up 0.8%.

The surge in the LME aluminium price on Wednesday August 8 has translated into a stronger Shanghai Futures Exchange aluminium price, up 2.2% to 14,805 yuan ($2,167) per tonne based on its most-traded October contract. Lead prices were up 1% while nickel was up 0.7%, copper up 0.6% and zinc secured a 0.5% gain. Tin was the only exception, down 0.1% at the time of writing. Still, the base metals prices on the SHFE were up strong by an average of 0.8%.

Other metals on the SHFE were less positive. The October steel rebar contract was down 0.8% to 4,206 yuan per tonne. The most traded December gold and silver contract stood unchanged this morning. Meanwhile, the January iron ore contract on the Dalian Commodity Exchange is trading at 512 yuan per tonne.

Undermined by escalating trade tensions, spot Brent crude oil prices struggled to clear above $75.00 per barrel and are consolidating near recent lows this morning at $72.50 per barrel. In the bond market, US 10-year treasuries were weaker at 2.9504%, while the German 10-year bund yield has edged lower to 0.3900%.

Following on from a weaker performance in US and European equity markets, Asian equity markets were mixed this morning. The US Dow Jones was down 45 points and S&P 500 index was mildly lower by (-0.03%). The Nikkei and Topix were down (-0.03%) and (-0.1%) respectively while others such as the Hang Seng (+1.14%), the CSI 300 (+2.66%) and the ASX 200 (+0.57%) index enjoyed a relief rally higher as risk sentiment toward Chinese economic outlook has improved.

Weakness in the dollar index is helping boost metals prices already this morning. The greenback has struggled to garner bids since the Monday August 6 high of 95.53. The index is down 0.02% at the time of writing and trades at 95.08. A technical break below psychological price level at 95.00 could trigger more selling. This bodes well for both the base and precious metals prices as well as commodities currencies to wiggle higher. Ever since the People’s Bank of China (PBoC) took steps on Friday August 3 to boost forwards foreign exchange trading requirements to 20%, the Chinese yuan has firmed to 6.8164.

Economic data on Thursday August 9 saw Japan core machinery orders that came in below market expectation while Chinese consumer price index and producers price index numbers beat expectations. Market focus will turn to a host of US data, with core CPI and unemployment claims, followed by final wholesale inventories.

The base metals complex has started to come to terms that its improving fundamental factors such as falling global inventory stocks levels and generally tight supply chain matters. In the current period of low prices, bargain-hunting with “buy-the-dip” mentality is also at work since most of the negative impact from trade tensions are already priced in.

That said, buyers should not be complacent here and it is rather obvious that more buying is needed in the base metals in order to build a solid foundation for a counter-reversal rally to last. If the supply disruption matters in aluminium, LME copper prices should attract more buying interest in the coming days.

With the dollar index retreating this morning, the precious metals complex has attracted mild buying interest. But gains seen on both gold and silver remain limited because prices have spent most of this week trading within a tight range. Comex speculative funds positioning remains relatively bearish and the lack of fresh buying among long-term ETF investors explains the lack of impetus for further upside for now.

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