METALS MORNING VIEW 12/09: Base metals prices recover but trade jitters linger

Three-month base metals prices on the London Metal Exchange were in a steadier tone so far on Wednesday September 12, after they closed broadly lower on Tuesday amid dollar strength and rising trade war concerns.

Lead (+0.7%) and sister metal zinc (+0.5%) were leading the gains, with aluminium and copper up by more modest amounts of 0.3% and 0.1% respectively, while nickel (-0.1%) and tin (-0.5%) were in negative territory.

Trading volumes have been relatively light this morning, with 4,867 lots traded across the LME base metals as at 6.35am London time.

The precious metals, meanwhile, remained on the defensive, with the complex down by an average of 0.2% this morning. A firm dollar continues to create headwinds; data from the United States on Tuesday continues to fuel expectations for monetary tightening by the US Federal Reserve after job openings reached a record high and supported wage growth expectations.

In China, the base metals prices on the Shanghai Futures Exchange were mixed with zinc (+1.5%), nickel (+0.7%), lead (+0.3%) and copper (+0.2%) in positive territory, while aluminium (-0.2%) and tin (-0.4%) weakened.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange dropped by 0.7% to 492 yuan ($72) per tonne. On the SHFE, January steel rebar contract was down by 1.4% at 4,039 yuan per tonne, while the December gold contract was up by 0.1% and the December silver contract was down by 0.2%.

In wider markets, spot Brent crude oil prices were up by 0.4% at $79.41 per barrel, bolstered by supply disruption concerns.

Equities in Asia remained under pressure on Wednesday, testing multi-month lows as the threat of escalating trade tensions continue to undermine investor confidence; the Nikkei 225 was down 0.4%, with similar falls in the CSI 300 (-0.3%), Hang Seng (-0.2%) and ASX 200 (-0.1%).

In currencies, the dollar remains well bid against its major peers despite reports Chinese authorities intend to seek permission from the World Trade Organization to sanction the US for failing to comply with a ruling that deemed some of its anti-dumping rules to be illegal.

Economic data overnight showed consumer sentiment in Australia slowed in September following the rise in mortgage rates and political instability. Industrial production is due from the Eurozone ahead of figures from the US forecast to show producer prices rose 0.2% in August. The core producer price index (PPI) is seen unchanged at 0.2%. In addition, the US Federal Reserve will publish its latest Beige Book.

While the base metals were in a firmer mood on Wednesday, the complex is still struggling to hold on to any meaningful price gains while the market awaits some clarity on the US trade position. If US President Donald Trump follows through with his threat of fresh tariffs on Chinese goods another period of risk-off is likely to follow.

In the precious metals, lower prices are starting to attract stronger demand for coins and bars among individual retail investors. For the moment, rising real interest rates continue to deter institutional investors, although in view of the elevated fund short exposure, a modest relief rally could emerge after next Federal Reserve meeting on September 26. Another round of tariffs and signs of emerging market contagion could be the catalyst to increase demand for haven assets.

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