METALS MORNING VIEW 15/05: Nickel, lead in the driving seat; other metals rangebound

Base metals prices on the London Metal Exchange were on divergent paths on the morning of Tuesday May 15, with copper, nickel, lead and tin down by between 0.2% and 0.6%, while aluminium was unchanged and zinc prices had rebounded by 0.7%.

Volume on the LME has been average, with 4,526 lots traded as at 06.55 am London time.

Precious metals prices were broadly down with gold off by 0.1% at $1,311.91 per oz, silver prices down by 0.2%, palladium prices weaker by 0.3%, while platinum prices were up by 0.1%. A firmer dollar has acted as a headwind again, negating any bullishness due to increased tensions in the Middle East.

Copper and lead prices on the Shanghai Futures Exchange were weaker by 0.7% and 0.4% respectively this morning, with copper prices at 51,230 yuan ($8,080) per tonne, while the rest of the complex was stronger. Nickel prices led the gains with a 1.4% rebound, while aluminium, zinc and tin prices were up by between 0.1% and 0.3%.

Spot copper prices in Changjiang were down by 0.4% at 50,900-51,040 yuan per tonne and the LME/Shanghai copper arbitrage ratio has rebounded to 7.47 from 7.42 on Monday.

In other metals in China, iron ore prices were up by 0.1% at 484.50 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices were down by 0.4%, while gold and silver prices were down by 0.4%and 1% respectively.

In wider markets, spot Brent crude oil prices were down by 0.32% at $78.21 per barrel this morning after a strong performance on Monday. The yield on US 10-year treasuries has climbed back above 3% and was recently quoted at 3.02%, while the German 10-year bund yield has firmed to 0.62%.

Equity markets in Asia were weaker on Tuesday: Nikkei (-0.21%), Hang Seng (-1.05%), CSI 300 (-0.04%), the ASX 200 (-0.61%) and the Kospi (-0.71%). Stronger US treasury yields and some weakness in Chinese retail sales seem to be weighing on sentiment. This follows a flat to firmer performance in western markets on Monday, where in the US the Dow Jones closed up by 0.27% at 24,899.41, and in Europe where the Euro Stoxx 50 closed up by 0.01% at 3,565.74.

The dollar index was firmer this morning at 92.72 – this follows Monday’s rebound off a low of 92.24 – the brief pullback between May 10-14, appears to have been just a pause.

The rebound in the dollar has halted the rebounds in the other major currencies: euro (1.1928), sterling (1.3551), the Australian dollar (0.7515) and the yen (109.890). The yuan has also weakened, it was recently quoted at 6.3506 and most of the emerging market currencies we follow are looking weaker again.

The economic agenda is busy today, with data already out showing a mixed picture in China. The country’s fixed asset investment fell to 7%, having previously been up 7.5%, retail sales increased 9.4% after a 10.1% rise, but industrial production surprised to the upside with a 7% gain, after a previous reading of 6%. Japan’s tertiary industrial activity fell 0.3% and Germany’s first-quarter preliminary gross domestic product (GDP) climbed 0.3%, having been expected to climb 0.4% after a 0.6% rise in the fourth quarter.

European data out later includes the French consumer price index (CPI), data on UK employment, EU GDP, German and EU ZEW economic sentiment and EU industrial production. US data including retail sales, the Empire State Manufacturing Index, business inventories, housing market index and TIC long-term purchases is also due. In addition, US Federal Open Market Committee member John Williams is speaking.

The base metals generally remain rangebound with upside initiatives running into selling, while underlying sentiment remains strong enough to support price dips.

The two metals attempting a move on the upside are lead and nickel – lead probably because of the possibility of US sanctions against Iran which could impact lead exports. Meanwhile, nickel prices are upbeat as more nickel is now being consumed domestically in Indonesia, and therefore less is available for export, while the country ramps up stainless steel production.

On balance, across the base metals complex as a whole, we feel underlying demand is good, but with economic data not great, consumers feel in little need to chase prices higher.

The precious metals are oscillating sideways and most are in the lower half of their recent trading ranges, although palladium prices are holding up a bit higher than the rest of the complex. The stronger US treasury yields and firmer dollar seem to be keeping the cap on prices, even though there are heightened tensions over trade, sanctions and in the Middle East. We expect more sideways trading for now.