METALS MORNING VIEW 11/05: Metals prices consolidate ahead of LME Asia Week

Three-month base metals prices on the London Metal Exchange gave a mixed performance on the morning of Friday May 11, with the complex averaging a slight 0.1% gain as at 06.42 am London time.

Copper and aluminium were down by 0.2% and 0.4% respectively, nickel and zinc were little changed, while lead (+0.7) and tin (+0.3%) were the complex’s strongest performers.

But with a total trading volume of 3,729 lots this morning, significantly below the weekly average of 5,540 lots, this suggests a very quiet market with prices consolidating ahead of next week’s annual LME Asia Week gathering in Hong Kong.

On the Shanghai Futures Exchange, the base metals were broadly positive with nickel (-0.3%) and tin (-0.2%) bucking the general strength. The rest of the metals were up by an average of 0.3% - led by a 1.1% gain in zinc prices. Copper prices were up by 0.7% at 51,470 yuan ($8,098) per tonne.

In other metals in China, steel rebar prices on the SHFE were up by 2% at 3,666 yuan per tonne, while gold and silver prices were up by 0.1% and 0.5% respectively. Iron ore prices on the Dalian Commodity Exchange rose 3.1% to 484 yuan per tonne.

In precious metals, US President Donald Trump’s decision to opt out of the Iran nuclear deal has been overshadowed by military action between Iran and Israeli forces in Syria and the fresh geopolitical tensions in the Middle East along with a slightly weaker dollar index due to softer US inflation numbers had supported both gold and silver prices higher on Thursday. This morning however, bullion prices are in consolidation mode.

Similarly, prices for the platinum group metals (PGMs) were consolidating near recent highs, with platinum and palladium trading at $923.20 per oz and $995.70 per oz respectively.

In broader markets, supply concerns continue to buoy the Brent crude oil market, with prices hovering near recent highs of $77.29 per barrel.

The economic agenda is rather light today, with overnight data out of Japan showing the country’s M2 money supply at 3.3%, beating both the forecast and previous readings of 3.2% and 3.1% respectively. Later, the market will turn its attention to the Canadian unemployment rate, US import prices as well as the University of Michigan’s consumer sentiment and inflation expectations. In addition, European Central Bank Mario Draghi is set to speak, but it is unlikely to be a market-moving speech.

Despite a retreat in the dollar index and talks of peace in the Korean peninsula, overall sentiment in the base metals complex remains nervous. Fresh geopolitical concerns in the Middle East, continuing trade negotiations between the United States and China as well as sluggish growth data from key economies continue to suppress consumers’ need to chase prices any higher. With global metals and mining professionals convening in Hong Kong next week for LME Asia Week, Metal Bulletin’s coverage of the event should shed light on the market’s views for the second half of 2018.

As we approach the end of the trading week, both gold and silver should remain attractive as market attention turns to Syria. Any fresh military development between the Iran and Israel could easily push risk-averse investors into haven-buying mode. Furthermore, previously built-up bearish exposure from the speculative funds community is likely to come under short-covering pressure, which should support a rally in both metals.

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