METALS MORNING VIEW 12/03: LME base metals prices buoyant, recent dip looks more like consolidation

The three-month base metals prices on the London Metal Exchange were up across the board by an average of 0.5% this morning, Tuesday March 12.

Nickel once again led the way with a 1.4% gain to $13,090 per tonne, compared with Monday’s close at $12,915 per tonne, while copper was up by 0.6% at $6,459 per tonne, having closed on Monday at $6,421.50 per tonne. Copper and nickel are in the driving seats as they lead the rebounds, while the others are consolidating.

Volume was average with 7,735 lots traded on LME Select as at 06.59am London time, compared with an average across last week of 7,516 lots at a similar time.

Spot precious metals prices were also up across the board, led by a 1% gain in platinum prices. Silver was up by 0.6% at $15.39 per oz, compared with $15.30 per oz at Monday’s close and gold was up by 0.2% at $1,295.69 per oz, against $1,292.55 per oz at the close on Monday. Palladium was little changed at $1,535.20 per oz.

In China, base metals prices on the Shanghai Futures Exchange were mixed with April lead and May tin down by 0.2% and 0.3% respectively, while the rest were up by an average of 0.4% – led by a 0.7% gain in May copper to 49,390 yuan ($7,342) per tonne. This compares with May copper’s closing price of 49,030 yuan per tonne on Monday.

The spot copper price in Changjiang was up by 0.5% at 49,720-49,810 yuan per tonne this morning, compared with 49,490-49,580 yuan per tonne on Monday, while the London/Shanghai copper arbitrage ratio was weaker at 7.64 after 7.67 at a similar time on Monday.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was up by 1.9% at 612.50 yuan per tonne, compared with 601 yuan per tonne at the close on Monday. On the SHFE, the May steel rebar contract was up by 2% at 3,800 yuan per tonne, compared with 3,727 yuan per tonne at Monday’s close.

In wider markets, the spot Brent crude oil price was up by 0.15% at $66.81 per barrel, compared with $66.74 per barrel at the close on Monday.

The yield on US 10-year treasuries was firmer again this morning, suggesting a pick-up in broader market sentiment, it was recently quoted at 2.6638% after 2.6485% at a similar time on Monday. The yields on the US 2-year and 5-year treasuries remain inverted and were recently quoted at 2.4946% and 2.4661% respectively. The German 10-year bund yield was at 0.0850%, after 0.0700% on Monday morning.

Asian equity markets were mostly firmer on Tuesday, as they were on Monday: Nikkei (+1.79%), Hang Seng (+1.50%), the CSI 300 (+0.68%), the Kospi (+0.89%) while the ASX 200 was weaker (-0.09%).

This follows a stronger performance in western markets on Monday; in the United States, the Dow Jones Industrial Average closed up by 0.79% at 25,650.88, and in Europe, the Euro Stoxx 50 closed up by 0.63% at 3,304.44.

The dollar index has pulled back from multi-month highs and was recently quoted at 97.02, the high on March 7 was 97.72, which just overcame the 2018 peaks from November 2018 at 97.70 and December 2018 at 97.71. The soft US employment report on March 8 weighed on the dollar, while some optimism regarding the United Kingdom’s exit from the European Union in the process known as Brexit has boosted sterling (1.3221) and the euro (1.1265).

The Australian dollar (0.7073) and the Japanese yen (111.36) are consolidating, as is the yuan (6.7118). Most of the other emerging market currencies we follow are showing strength, after their recent weaker tones, but the Indian rupee has been moving from strength to strength, reaching levels not seen since early-January.

On the economic agenda, there is data on UK manufacturing and industrial production, gross domestic product (GDP), construction output, goods trade balance and the index of services. US data includes the National Federation of Independent Business small business index and consumer price index (CPI). In addition, US Federal Open market Committee member Lael Brainard is speaking and the UK Parliament is to hold a vote on the Brexit deal.

This year’s rallies in base metals prices ran out of steam over the past two weeks but last Friday’s lows did seem to attract some buying and there has been some follow-through interest this morning. With sentiment in other markets seeming to be less risk-off than it was last week, we still view the recent weakness as consolidation – at least for now. That said, given the general stream of poor economic data and Brexit, there does not seem to be too much to be bullish about, other than businesses seem to be running with low stocks and the seasonally stronger second quarter is approaching. The market is waiting to see if the rumors of large copper stock deliveries turn out to be true, if so then that could dampen sentiment for a while.

Gold prices put in a strong rebound on March 8 suggesting stress in the broader markets but the fact the dollar is softer and that has not seen follow-through interest in gold suggests investors may be looking at bargain hunting into the weakness seen in other markets, which may leave gold more on the sidelines, while the more industrial precious metals fair better.

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