METALS MORNING VIEW 12/04: Base metals prices remain in risk-off mode

The base metals are for the most part weaker this morning, Wednesday April 12, with losses on the London Metal Exchange averaging 0.3%, led by a 0.6% fall in three-month lead prices to $2,241 per tonne and a 0.5% fall in copper prices to $5,741, while aluminium is unchanged and zinc is up 0.1%.

Volume as of 06:50 BST was average with 5,182 lots traded. This follows a mixed performance on Tuesday, when nickel and zinc prices fell 2.5% and 2%, respectively, tin prices were off 1.2%, while lead, aluminium and copper closed slightly firmer.

Gold prices are little changed this morning at $1,274.30 per oz, as are the other precious metals, but they put in a strong performance on Tuesday, with average gains of 2.1%, with gold setting a fresh high at $1,275.45 per oz, which was extended earlier this morning to $1,279.85 per oz. The yen has also run up to set a fresh high for the year – a clear sign that haven assets are in demand.

In Shanghai this morning, base metals prices on the Shanghai Futures Exchange are for the most part weaker with nickel prices down 3%, zinc prices down 1.2% and tin off 1.1%. Lead prices are off 0.4% and copper prices are off 0.3% at 46,700 yuan per tonne, while aluminium bucks the trend with a 0.2% gain. Spot copper prices in Changjiang are off 0.2% at 46,500-46,650 yuan per tonne and the LME/Shanghai copper arb ratio remains little changed at 8.14.

In other metals in China, September iron ore futures are down 3.4% on the Dalian Commodity Exchange, while on the SHFE, steel rebar prices are down 3%, gold prices are up 1.3% and silver prices are up 1.7%. In international markets, spot Brent crude oil prices are up 0.1% at $56.32 per barrel and the yield on the US ten-year treasuries has eased further to 2.29%, another sign that money is shifting to safety.

Equities were weaker in Europe on Tuesday with the Euro Stoxx 50 closing down 0.3%, while the Dow closed little changed at 20,651. Japan is showing more concern as the stronger yen hurts exporters, which has seen the Nikkei drop 1.2%. The CSI 300 and Hang Seng are off 0.1% while the ASX 200 is little changed and the Kospi is up 0.7%.

The run-up in the dollar index that climbed to a high of 101.35 on Monday has slipped back to 100.65, suggesting the dollar is not picking up haven buying even if treasuries are. The yen has broken higher to 109.55, the highest it has been since November, the euro is firmer at 1.0614, as is the sterling at 1.2490, while the Australian dollar has run into underlying support and was recently quoted at 0.7498.

In emerging markets, the yuan remains weak at 6.9000 and most other emerging market currencies are slightly weaker too, although the rand has halted its slide for now.

Data out already showed a pick-up in Japanese bank lending, a pick-up in core machinery orders and a rise in Japanese PPI, while Chinese CPI edged higher to 0.9%, China’s PPI eased to 7.6% and German WPI dropped to flat. Later there is data on UK unemployment; US import prices, crude oil inventories and the Federal budget balance. In addition, Bank of England governor Mark Carney and US president Donald Trump are speaking – see table below for more details.

The base metals remain under pressure, especially zinc prices that have dropped through numerous support levels, this we think due to last week’s unconfirmed rumours that some idle zinc mines may be brought back into production. For the rest of the metals the easier tone could be consolidation, but given prices have struggled to break higher, aluminium excepted, the lack of upside momentum may well lead to further stale long liquidation. With a pick-up in geopolitical tension following the US missile attack on Syria and with the market wondering whether the USA will take a firmer stance against North Korea, combined with all the uncertainty surrounding the upcoming French presidential election, there is an undercurrent of not putting on risk – key will be whether that swings to risk-off.

In line with the above gold prices have advanced further and the other precious metals are being buoyed by gold. Will Trump fuel the geopolitical tension when he speaks later today?

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

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