METALS MORNING VIEW 14/08: Base metals prices consolidate near recent lows amid pause in selling

Three-month base metals prices on the London Metal Exchange consolidated higher from recent lows on the morning of Tuesday August 14 as relative calmness swept through the market to support a return of risk-on sentiment after the Turkish Lira stabilized at 6.8700 against the dollar earlier today.

But disappointing Chinese data out this morning has limited any gains across the base metals complex amid rising concerns over the health of the world’s second largest economy; Chinese fixed asset investment, industrial production and retail sales data all failed to live up to market expectations.

The LME base metals were up by an average of 0.4% as at 5.46am London time on Tuesday, with a total of 5,365 lots traded across the complex. Lead was the strongest performer with a gain of 0.8%, followed by increases of 0.7%, 0.4% and 0.3% in zinc, nickel and aluminium respectively. Copper and tin failed to register any price gains this morning, indicating that there is a lack of buying interest in either metal.

Still, the selling momentum has slowed considerably.

Monday’s sell-off in the commodities market has also negatively affected the more industrial precious metals this morning; platinum was down by 0.1% to trade at $800 per oz, while palladium was unchanged but currently finding support at around $892 per tonne.

Bullion prices were both stronger, however, with gold up by 0.1% at $1,195.36 per oz, while silver has consolidated higher but remains vulnerable to further downside with the support level at $15.00 per oz looking fragile. The strength in gold and silver prices comes after both reached fresh 2018 lows on Monday at $1,191.80 per oz and $14.97 per oz respectively.

US President Donald Trump’s administration is one busy fighting battles on many fronts; from fresh political instability after sanctions were implemented against Iran, Turkey and Russia to an ongoing trade dispute with China, the heightened global tensions have sent jitters through global markets. Against such a negative macroeconomic backdrop, the demand outlook for industrial metals has deteriorated considerably.

In China, base metals prices on the Shanghai Futures Exchange have reacted lower this morning, with the complex down by an average of 0.7%. Leading the decline was the most-traded October zinc contract with a fall of 1.8%, followed by nickel (-1.5%), tin (-0.8%) and copper (-0.3%). Only lead and aluminium prices managed to buck the weaker tone on the SHFE this morning, with mild gains of 0.3% and 0.1% respectively. But with the majority of the complex struggling, overall sentiment is relatively bearish and remains subject to further downside pressure.

In other metals in China, the December gold and December silver contracts on the SHFE were down by 0.8% and 1.1% respectively, but the October steel rebar contract leapt 1.5% to 4,344 yuan per tonne – possibly fueled by the strong demand expectations after Chinese authorities proceeded with further stimulus spending to boost infrastructure spending. The Dalian Commodity Exchange’s January iron ore contract was also stronger, ticking 0.4% higher to 513 per tonne.

Spot Brent crude oil prices dipped below $71.00 per barrel on Monday but have started to edge higher this morning amid bargain-hunting interest, currently trading at $72.80 per barrel. In the bond market, US 10-year treasuries were a tad higher at 2.8840% but the Turkish Lira contagion has encouraged European investors to flock to the safety of government bonds, with the German 10-year bund yield trading below 0.3200%, a stark contrast to last week’s 0.3900%.

Asian equity markets were mixed on Tuesday: risk-on sentiment has supported the Nikkei and Topix higher, with gains of 2.02% and 1.46% respectively, but Chinese equities were understandably weaker after the disappointing economic data earlier this morning with the Hang Seng Index and Shenzhen CSI 300 down by 1.46% and 0.62% respectively. This comes after weakness in western markets on Monday; in the United States, the Dow Jones closed down by 125 points or 0.5% at 25,187, while the S&P500 also struggled as it fell 0.4% to 2,821.

In currencies, the dollar index has retreated from its 2018 high of 96.53 reached on Monday and is currently trading near 96.27. This has provided relief to both emerging market currencies and commodity markets this morning.

After a flurry of economic data from China this morning, the agenda remains fairly busy with French and German consumer price index (CPI) readings, the United Kingdom’s unemployment rate, EU gross domestic product, German ZEW Economic sentiment and US import prices.

The lack of buying conviction in the base metals complex has hurt sentiment and kept rebound momentum limited. Price gains seen last week were short lived, with the demand outlook towards the base metals complex remaining fragile. Negative Chinese economic data this morning has been well absorbed, but the turmoil in the currency market could continue to undermine risk sentiment. Against the current backdrop of uncertainty, the base metals prices remain vulnerable to further downside in the very short term.

Despite market turmoil and violent currency fluctuations, the precious metals prices failed to register any significant bids on the back of haven-demand. Instead, the strong dollar index continues to dictate gold prices and the break of the psychological support level at $1,200 per oz does not bode well.  Speculative fund positioning has deteriorated further, with significant build-up in the gross short position; Comex speculators have turned more confident with their bearish bets.

Similarly, the platinum group metals have been the subject of fresh selling from Nymex speculators. With no immediate sign that the downside pressure is letting up, the precious metals complex could continue to struggle near recent lows.

London Metal Exchange, base metals prices

Shanghai Futures Exchange, base metals prices

macroeconomic data