METALS MORNING VIEW 14/03: Metals prices mainly weaker after Chinese industrial production slows, but other data looks brighter

Three-month base metals prices on the London Metal Exchange were mixed this morning, Thursday March 14, with copper, nickel, lead and zinc down by an average of 0.4%, while lead and tin were up by 0.1% 0.4% respectively.

Three-month copper was recently quoted at $6,444 per tonne, down by 0.3% compared with Wednesday’s close at $6,466 per tonne.

Volume was below average, with 5,913 lots traded on LME Select as at 06.57am London time, compared with an average across last week of 7,516 lots at a similar time.

This morning’s performance reflects mixed Chinese data – industrial production growth fell to 5.3% year on year in the first two months of the year from 5.7% previously and the unemployment rate climbed to 5.3% in February from 4.9% in December 2018.

But there were some positive figures – fixed asset investment climbed by 6.1% in January-February after a 5.9% increase previously; retail sales were unchanged at 8.1%; and property investment climbed by 11.6% in the first two months of the year compared with 9.5% across 2018. Historically, since the real estate sector has been and remains a key driver of China’s economy, this numbers bode well.

Spot precious metals prices were down across the board by an average of 0.5% on Thursday, with gold down by 0.5% at $1,302.82 per oz from Wednesday’s close of $1,309.30 per oz, while silver and platinum were down by 0.7% and 0.6% respectively and palladium was down by 0.2%.

In China, base metals prices on the Shanghai Futures Exchange were mixed this morning, with the May contracts for copper and nickel and the April contract for lead down by between 0.7% and 0.9%.

The May contracts for aluminium and zinc were up 0.4% and 0.3% respectively and May tin was unchanged. The May copper contract was off by 0.7% at 49,090 yuan ($7,315) per tonne, compared with 49,420 yuan per tonne at the close on Wednesday.

The spot copper price in Changjiang was down by 0.2% at 49,680-50,000 yuan per tonne this morning from 49,780-50,100 yuan per tonne on Wednesday, while the London/Shanghai copper arbitrage ratio was again weaker at 7.62 after 7.63 at a similar time on Wednesday.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was up by 2.7% at 626.50 yuan per tonne from 610 yuan per tonne at the close on Wednesday. On the SHFE, the May steel rebar contract was down by 0.5% at 3,799 yuan per tonne compared with 3,817 yuan per tonne at Wednesday’s close.

In wider markets, the spot Brent crude oil price was 0.4% stronger at $67.90 per barrel than $67.63 per barrel at the close on Wednesday.

The yield on US 10-year treasuries has firmed slightly this morning – it was recently quoted at 2.6278% after 2.6105% at a similar time on Wednesday. The yields on the US 2-year and 5-year treasuries remain inverted – they were recently quoted at 2.4679% and 2.4337% respectively. The German 10-year bund yield was also firmer at 0.0800% after 0.0600% on Wednesday morning.

Asian equity markets were mixed on Thursday: Nikkei (-0.22%), Hang Seng (+0.01%), the CSI 300 (-0.69%), the Kospi (+0.34%) and the ASX 200 (+0.30%).

This follows a stronger performance in western markets on Wednesday; in the United States, the Dow Jones Industrial Average closed up by 0.58% at 25,702.89; and in Europe, the Euro Stoxx 50 was up by 0.59% at 3,323.45.

The dollar index remains on a back footing following its recent retreat from multi-month highs – it was recently quoted at 96.55. The high on March 7 was 97.72, which just overcame the 2018 peaks from November at 97.70 and December at 97.71.

The other major currencies we follow are mixed; the yen (111.62) and the Australian dollar (0.7065) are slightly weaker while the euro (1.1330) and the pound (1.3305) are firmer, suggesting the market is slightly less concerned about the United Kingdom making a hard exit from the European Union in the process known as Brexit.

The yuan is edging lower again – it was recently quoted at 6.7158 compared with 6.7095 at a similar time on Wednesday. Most of the other emerging market currencies we follow are mixed, providing no concerted signal.

In addition to the Chinese data already out and mentioned above, the market is expected to focus on German and French consumer price index (CPI) data, US initial jobless claims and new home sales. In addition, the UK Parliament is expected to hold another vote on Thursday, this time on whether to delay Brexit.

For now, the base metals are split between those holding up well but consolidating, and those pushing higher. The latter include zinc and aluminium. The fact prices are holding up well despite the many headwinds is noteworthy, suggesting that, after an extended period of weak sentiment caused by the US trade disputes, the supply chain may have destocked to an extent that it now needs to buy hand-to-mouth. This in turn is giving apparent demand a boost.

We now need to see if the rise in Chinese property investment is a sign that the country’s stimulus efforts is starting to take effect.

Gold prices have rebounded in recent days, mirroring weaker bond yields and a pick-up in haven demand, but gold prices are working lower today, suggesting a pick-up in risk appetite, which the rise in equities in western markets also suggests. Silver and platinum prices are following gold’s lead, while palladium is consolidating in high ground.

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