METALS MORNING VIEW 13/01: Metals prices consolidate after strong gains, ahead of uncertainty

Base metals prices on the London Metal Exchange are consolidating at lower numbers this morning, Friday January 13, with prices down an average of 0.7%, this is after a bullish day on Thursday, when prices climbed an average of 2%.

We see the performance on the LME as being driven by profit-taking ahead of the weekend and ahead of what may well be a choppy market next week in the run up to the US presidential inauguration. Zinc, lead, nickel and copper prices are down between 0.8% and 1%, aluminium prices are off 0.4% while tin is little changed as of 06:27 GMT. Volume has been above average with 8,224 lots traded. Copper prices are at $5,821 per tonne, Thursday’s high being $5,884 per tonne.

Precious metals have edged lower overnight, spot prices are off 0.3% on average, led by a 0.5% fall in palladium prices, while gold prices are off the least with a 0.1% fall to $1,194.98 per oz – Thursday’s high was $1,207 per oz. The strength of the bullion market, running in parallel with other markets, suggests some investors are buying into gold as a hedge against the possibility of market shocks as US president-elect Donald Trump takes power.

In Shanghai, the base metals prices are quite polarised with nickel prices down 1.6%, tin prices down 1.2%, lead and zinc down around 0.9%, while aluminium is up 1.4% and copper prices are up 0.5% at 47,230 yuan per tonne. Nickel is off following the surprise decision by Indonesia to allow some nickel ores to be exported, this for the first time since January 2014, while aluminium prices are up on rumours of capacity cuts in China – if true then that is a surprisingly bullish and altruistic development considering how relatively high aluminium prices are and the country’s record of overproduction. Spot copper prices are up 0.9% at 47,200-47,400 yuan per tonne, which means they are slightly backwardated compared with the March futures, while the futures forward curve itself remains in a contango out to August. The LME/Shanghai copper arb ratio is at 8.11.

In other metals in China, May iron ore prices are down 0.1% on the Dalian Commodity Exchange, on SHFE steel rebar is down 0.8%, gold prices are little changed and silver prices are off 0.7%. In international markets, spot Brent crude prices are down 0.1% at $56 per barrel.

Equities were weaker on Thursday – the markets did not seem overly impressed with the US president-elect’s speech on Wednesday afternoon and that seems to have weighed on the overall bullish sentiment. The Euro-Stoxx 50 closed down 0.6%, the Dow closed down 0.3%, but Asia seems to more upbeat having been generally lower this time on Thursday. This morning, the Nikkei is up 0.8%, the Hang Seng is up 0.4%, the CSI 300 is up 0.1%, but the Kospi is down 0.5% and the ASX 200 is off 0.8%.

In FX, the dollar index is still looking heavy at 101.39, the low on Thursday was 100.73, so it has rebounded to some extent, but the near term trend looks to be to the downside now. Conversely, the euro is firmer at 1.0629, as is the yen at 114.73, the Australian dollar at 0.7493, while the sterling at 1.2162 continues to languish in low ground weighed down by Brexit concerns. The yuan is consolidating around 6.6650, the peso remains weak at 21.8100 and the other emerging market currencies we follow are for the most part flat-to-firmer.

The economic agenda is busy, data out already has focused on China’s trade balance – the trade surplus dropped 8.5% in US dollar denominated terms, with exports in December off 6.1% and imports up 3.1%, compared with December 2015. Data out later includes German WPI, Bank of England credit conditions survey, with US data including retail sales, PPI, preliminary University of Michigan consumer sentiment and inflationary expectations, plus business inventories. Central bank speakers include UK’s MPC Michael Saunders and US Federal Open Market Committee member Patrick Harker.

The base metals are generally upbeat, especially three-month aluminium prices that just topped the November high at $1,794.50 per tonne by trading at $1,795 per tonne on Thursday and again this morning. Copper, lead and zinc are all trending higher again, although they are pausing this morning, tin prices remain stuck sideways and while nickel prices had been rebounding since early January, they fell on Wednesday and spiked lower on Thursday. This is not surprising given the change in Indonesia’s stance on ore exports – given the development it is surprising prices have not sold off more – for now the market is likely to remain volatile as the ins and outs of the new rules are worked out. Given the potential for market-moving surprises when the new US administration takes over a week today, we would not be surprised if traders start to step to the sidelines, which is likely to lead to more consolidation and choppy trading.

Gold prices are leading the precious metals higher and we see this as a factor of more cautionary haven buying being done because of the geopolitical uncertainty that lies ahead.

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