METALS MORNING VIEW 12/01: LME metals prices look well placed to advance

Base metals prices on the London Metal Exchange are generally higher this morning, Friday January 12, with prices fairly uniformly up between 0.5% and 0.6% - apart from tin prices that are down 0.1% at $20,159 per tonne. Three-month copper prices are up by 0.5% at $7,167 per tonne and zinc prices have been as high as $3,405 per tonne, which is a fresh multi-year high.

Volume has been average, with 7,271 lots traded as of 07.14am London time.

This follows a divergent performance on Thursday when the complex closed down with average losses of 0.2%, with zinc and tin prices up by 0.9% and 0.5% respectively, while copper, aluminium and lead prices were all down 0.2% and nickel prices dropped by 2%, albeit from fresh highs on Wednesday.

Platinum prices are leading the advance in percentage terms in the precious metals this morning, with prices up by 1% ($992.10 per oz), followed by a 0.8% rise in silver ($17.12 per oz), a 0.7% rise in palladium ($1,090.40 per oz) and a 0.5% rise in gold prices ($1,328.95 per oz). A weaker dollar and general strength across oil and the base metals seems to point to a pick-up in interest in commodity baskets.

This follows gains on Thursday in platinum (1.3%), gold (0.4%), silver (0.1%), while palladium prices dipped by 0.4%.

On the Shanghai Futures Exchange today, base metals prices are for the most part lower, which is in contrast to the performance on the LME. The complex is off by an average of 0.6%, with losses of between 0.1% for tin and 0.8% for lead, with copper prices down by 0.6% at 54,750 yuan ($8,415) per tonne - the only one in positive territory is zinc, where prices are up by 0.6%. Spot copper prices in Changjiang are down by 0.7% at 54,280-54,380 yuan per tonne and the LME/Shanghai copper arbitrage ratio has dropped to 7.65 up from 7.70 on Thursday.

In other metals in China, iron ore prices are down by 2.1% at 544 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices are down by 1.6%, while gold and silver prices are firmer by 0.2% and 0.1% respectively.

In wider markets, spot Brent crude oil prices remain strong at $69.06 per barrel, the yield on US 10-year treasuries remains firm at 2.55%, and the German 10-year bund yield has jumped to 0.53%, from 0.46% at a similar time yesterday.

Equities in Asia are mainly positive today: ASX 200 (0.04%), Hang Seng (0.71%), CSI 300 (0.46%), Kospi (0.34%), while the Nikkei is off by 0.24%. This follows a mixed performance in western markets on Thursday, where in the United States the Dow Jones closed up 0.81% at 25,574.73, and in Europe where the Euro Stoxx 50 closed down by 0.40% at 3,595.24.

The dollar index has fallen again and was recently quoted at 91.71, it has been down to a low of 91.69, which has breached the recent low of 91.75 from January 2. This opens the way for a test of the September 2017 low at 91.01. On the back of dollar weakness the other currencies are stronger: euro (1.2074), sterling (1.3555), yen (111.32) and the Australian dollar (0.7879). The yuan has also strengthened, indeed it gapped higher to 6.4701 and most of the other emerging currencies we follow are stronger, other than the Mexican peso and South African rand that are consolidating recent strength.

Data out already today shows strong Chinese exports for December that grew by 10.9% in dollar terms compared with the same month of 2016, but imports were weaker than expected, they grew by 4.5% year on year, which was below the forecast 13%. Japan’s economic watchers sentiment dipped to 53.9, from 55.1 - later there is data on French consumer price index (CPI), Italian industrial production with US data including: CPI, retail sales, business inventories and economic optimism. Germany’s Bundesbank president Jens Weidmann is also speaking.

The New Year slide in base metals prices seems to have abated for now, with prices moving sideways to higher in a choppy fashion - which suggests the dips have attracted buying, but the buyers do not yet feel the need to chase prices higher. The weaker dollar may prompt some non-US based buying which could give prices a boost. China’s strong export data supports the view of concerted global growth, although weaker import data needs to be monitored carefully for any signs of China’s domestic growth slowing. For now, we remain quietly bullish for the base metals complex and see the longer-term outlook as being positive, and traders may well continue to front run that. We expect dips to remain well supported - as seems to have been the case in recent days.

Gold, silver and platinum prices have had strong rallies in recent weeks, prices paused more recently, in what now look like mini-continuation patterns from which platinum and gold prices have broken higher from, leaving silver prices still consolidating. Palladium prices are also consolidating off the highs. With precious, base and oil prices performing well, it may be that commodities are back in vogue again with investors.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

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