METALS MORNING VIEW 11/02: Metals prices pull back as Chinese participants return after Lunar New Year holiday

China’s return to the market after a week-long break for Lunar New Year has not brought with it a rush to restock and that has led to some disappointed selling across the base metals traded on the London Metal Exchange, with the complex down by an average of 0.9% this morning, Monday February 11.

The three-month zinc price led the decline with a 2% drop, while the three-month tin price was down by the least with a 0.2% fall. The three-month copper price was off by 1% at $6,141 per tonne. Volume across the complex has been high with 15,085 lots traded as at 7.07am London time.

The precious metals prices were also weaker this morning, with prices down by an average of 0.6%. Palladium led the retreat with a 1.1% fall to $1,385.70 per oz, while gold was off by 0.2% at $1,311.12 per oz.

In China, base metals prices on the Shanghai Futures Exchange were for the most part weaker with prices down by an average of 0.8%. The exceptions were tin’s most-traded May contract that was up by 1.3% and copper’s most-traded March contract that was only marginally higher at 48,190 yuan ($7,143) per tonne.

Spot copper prices in Changjiang were up by 0.9% 48,030-48,220 yuan per tonne and the London/Shanghai copper arbitrage ratio was little changed at 7.85, having been 7.84 on February 1.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was up by an impressive 7.9% at 652 yuan per tonne. On the SHFE, the May steel rebar contract was up by 2.4%.

In wider markets, the spot Brent crude oil price was off by 0.44% at $61.79 per barrel – prices are consolidating below resistance that lies between $62 and $63.75 per barrel.

The yield on US 10-year treasuries was recently quoted at 2.6393%. The yields on the US 2-year and 5-year treasuries remain inverted, and were recently quoted at 2.4691% and 2.4482% respectively. The German 10-year bund yield was recently quoted at 0.0950%.

Asian equity markets were broadly firmer on Monday: Hang Seng (+0.56%), the CSI 300 (+1.82%), the ASX 200 (-0.17%) and the Kospi (+0.17%).

This follows a slightly weaker performance in western markets last Friday; in the United States, the Dow Jones Industrial Average closed down by 0.25% at 25,106.33, and in Europe, the Euro Stoxx 50 closed down by 0.48% at 3,135.62.

The dollar index is on the climb again and at 96.70 it is the highest it has been since early January. The dollar strength is weighing on the other major currencies we follow: the euro (1.1317), the yen (109.99), the Australian dollar (0.7094) and sterling (1.2933).

The yuan has also weakened after last week’s holiday and was recently quoted at 6.7752, having been around 6.7383 before the holiday. Most of the other emerging market currencies we follow are either on a slight backward footing, or are consolidating.

The economic agenda is focused on the United Kingdom with releases on manufacturing, gross domestic product (GDP), business investment, construction output, goods trade balance, index of services and industrial production. In addition, there are Eurogroup meetings throughout the day and US Federal Open Market Committee member Michele Bowman is speaking.

Most of the base metals prices are on a back footing after experiencing strength in the run-up to the Lunar New Year, but the stronger tone fizzled out more recently. With the Lunar New Year now out of the way, businesses should have fewer interruptions and their output should better reflect the state of the global economy going forward. For now poor economic data is a backward looking indicator, while the state of the US-China trade talks will be forward-looking. In this uncertain period, perhaps the underlying price trends are pointing the way and they are generally trending higher, some more so than others, with tin and nickel price trends leading the way.

The precious metals prices are for the most part consolidating recent gains and are generally holding up well. The exception is platinum that remains the weakest in the complex. Although there is a lot of uncertainty around in the global economy, most of the issues have been around for a long time so there does not seem any urgent need for haven assets.

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