METALS MORNING VIEW 15/08: Base metals enjoy some gains as North Korea takes a less aggressive stance

Base metals traded on the London Metal Exchange are edging higher this morning, Tuesday August 15, as global risk appetite continues to rise thanks to easing geopolitical tensions following the North Korean leader’s decision to back off plans to launch a military attack on the USA. Lead (+1.2%) is the strongest performer while copper (+0.2%) and tin (+0.2%) are the laggards. Volume has been average with 6,017 lots traded as of 06:30 BST.

This comes after an overall weak session on Monday, with the London Metal Exchange Index (LMEX) closing down 0.4%, as market participants adopted a cautious stance after disappointing Chinese data for July in spite of the notable recovery in global risk appetite. Nickel, registering a loss of 2.1%, was the worst performer across the board.

Precious metals prices are under pressure with the exception of palladium (+0.3%) thanks to its higher correlation with risk assets. Silver (-0.8%) is down the most this morning. Haven trades are unwinding because investors are induced to buy the dips in risk assets.

This follows a broad-based sell-off on Monday because the resurgence of investor affinity for risk led market participants to unwind their risk-unfriendly positions (especially gold and platinum) and jump back into risk assets (like equities).

On the Shanghai Futures Exchange (SHFE) this morning, the base metals complex is marginally higher, with an average gain of 0.1%. Zinc (+1.5%) is the star performer while nickel (-1.4%) performs the worst. Spot copper prices in Changjiang are unchanged at 49,970-50,120 yuan per tonne and the LME/Shanghai copper arb ratio stands at 7.85 (compared with 7.84 on Monday).

Equities continue to rebound today, with the Nikkei 225 (+1.35%), the KOSPI index (+0.63%), the Hong Kong Hang Seng Index (+0.29%), and the CSI 300 index (+0.28%) all higher after a broad-based rally on Monday. The VIX (fear index) tumbled around 20% to close at 12.33 on Monday, a tangible sign that investors welcomed the easing of geopolitical tensions between the USA and North Korea.

The dollar index is edging 0.14% higher to 93.54 after recording a gain of 0.37% on Monday. The rebound in the dollar reflects the rebuilding of carry trades and the steeper expected path of the US federal funds rate due to the dissipation of market stress. The probability of one Fed rate increase by year-end jumped to 45% on Monday, from 37% on August 11, according to the CME FedWatch Tool.

Let us now turn to economic data released earlier this morning in Asia. In Japan, industrial production accelerated at a stronger pace than expected at 2.2% month on month in June (compared with 1.6% expected) from a 1.6% rise in May. This should fuel further global risk appetite.

Looking at the day ahead, the economic calendar will be relatively light. In US data, investors will look to business inventories for June, retail sales and import prices for July, as well as the Empire manufacturing index and the NAHB housing market index for August. This may have some implications on the dollar, which in turn may influence metals pricing.

Base metals may continue to strengthen because investors are induced to rebuild long exposure to risk assets after last week’s risk-off mood. But given the recent negative surprises in China’s macro data, we will carefully watch domestic financial conditions as we acknowledge that a renewed tightening could prevent market players from implementing long positions across the industrial metals.

Precious metals may witness a little bit more of profit-taking because the easing geopolitical tensions are likely to exert upward pressure on the dollar and US real rates via a steepening of the expected path of the Fed funds rate. But this bout of profit-taking may prove short-lived due to the presence of domestic problems (most notably the debt ceiling) around the USA.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

What to read next
Aluminium and nickel appear to have once again escaped inclusion in the latest list of sanctions imposed by western governments on Russia, ending days of speculation that increased both the prices and the traded volumes of the metals.
Fastmarkets launches MB-CU-0513 copper cathode equivalent grade (EQ), cif Southeast Asia, $/tonne on Tuesday February 20.
Fastmarkets’ 2024 outlook for key raw materials and ingredients used in the production and distribution of fast-moving consumer goods
Weak demand continues to stem profitability and prevent capacity return in the European aluminium market, Norsk Hydro’s chief executives told Fastmarkets in an exclusive interview on Wednesday February 14.
The publication of Fastmarkets’ rand fixing prices for LME trade for Monday February 12 were delayed due to a technical issue.
The copper concentrate market was already tight, but the addition of major new smelting capacity this year – starting with the expansion of Freeport’s Gresik smelter in Indonesia — will likely mean maintenance breaks, capacity curtailments and potentially even closures while operating costs start to become untenable, Fastmarkets understands.