METALS MORNING VIEW 11/01: Base metals split into two camps, but strong start to trading day across the LME complex

Base metals on the London Metal Exchange were firmer this morning, Friday January 11, with three-month prices up by an average of 0.9%.

Zinc and nickel led the way with gains of 1.3% and 1.2% respectively, while copper was up by 0.9% at $5,972 per tonne as at 6.45am London time – the same price it held at a similar time on Thursday.

Volume across the complex has been above average with 8,805 lots traded.

Precious metals prices were also up across the board with gains averaging 0.6%; silver led the way with a 0.9% gain to $15.70 per oz, while gold was up the least with a 0.4% gain at $1,293 per oz.

In China, base metals prices on the Shanghai Futures Exchange were for the most part weaker, with the February copper, aluminium, zinc and May nickel contracts off between 0.2% and 0.7%, with copper down by 0.6% at 47,270 yuan ($6,958) per tonne. The February lead and May tin contracts were up by 0.3% and 0.2% respectively.

Spot copper prices in Changjiang were down by 0.5% at 47,080-47,220 yuan per tonne and the LME/Shanghai copper arbitrage ratio has slipped to 7.92 from 7.95 on Thursday.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was up by 0.2% at 509 yuan per tonne. On the SHFE, the May steel rebar contract was also up by 0.2%.

In wider markets, the spot Brent crude oil price was stronger by 0.7% at $61.71 per barrel and the market is looking robust considering prices were just above $50 per barrel late last month.

The yield on US 10-year treasuries has strengthened again, it was recently quoted at 2.7258%. The yields on the US 2-year and 5-year treasuries remain inverted at 2.5621% and 2.5508% respectively. The German 10-year bund yield was also stronger at 0.2500%. The firmer tone in yields suggests risk-on again.

Asian equity markets were mainly firmer on Friday: the Nikkei (0.97%), Hang Seng (0.49%), the CSI 300 (0.72%), Kospi (0.60%), while the Australian ASX 200 dropped 0.36%.

This morning’s performance in Asia follows another stronger performance in western markets on Thursday; in the United States, the Dow Jones Industrial Average closed up by 0.51% at 24,001.92, while in Europe, the Euro Stoxx 50 was up by 0.18% at 3,075.73.

The dollar index is trending lower, there was some dip buying on Thursday, but it is weaker again this morning and was recently quoted at 95.36 – the recent low being 95.03. The Australian dollar (0.7211) is rebounding, the euro (1.1530) continues to consolidate Wednesday’s gains, while sterling (1.2752) is poised just below recent highs and the yen (108.38) continues to consolidate after last week’s flash spike higher.

The yuan is accelerating its gains and was recently quoted at 6.7509 – this seems a strong sign that confidence is returning and that could go a long way into improving sentiment in the metals, especially if it is a harbinger of a trade deal. The other emerging market currencies we follow, with the exception of the Indian rupee, are either strengthening, or are consolidating recent gains – both signs of general confidence in the emerging markets, which is encouraging.

Economic data already out on Friday shows weakness in Japan’s economic watchers sentiment with the index falling to 48, from the prior reading of 51. Data out later includes Italian industrial production, with UK data including manufacturing and industrial production, construction output, goods trade balance, index of services and a gross domestic product (GDP) forecast. US data includes consumer price index (CPI) and the Federal budget balance.

The base metals are spilt into to two camps with tin and nickel making upside headway and looking well placed to continue, lead is to a lesser extent in the same camp, while copper, aluminium and zinc are oscillating sideways in fairly tight ranges – perhaps acting like springs that are being coiled – ready to push out.

For now, gold prices seem to be taking their lead from the weaker dollar and with equities nervous and still relatively high, compared with how metals performed last year, gold may still look attractive as a haven asset for those investors who are not yet ready to buy into the more industrial commodities. That said, with generally firmer base metals and strong oil prices, maybe investors are looking to get more involved in commodities again – after all a trade deal is likely given the damage that is showing up in the global economy, especially the automotive industry it would seem.

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Shanghai Futures Exchange, base metals prices, precious metals prices

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