METALS MORNING VIEW 16/05: Metals’ show of strength on Monday looks fragile

Base metals prices on the London Metal Exchange are down across the board this morning, Tuesday May 16, with prices down an average of 0.6%.

Lead and zinc prices are off 1.1%, nickel prices are down 0.9% and three month copper prices are off 0.4% at $5,582 per tonne. Volume has been average with 6,109 lots traded as of 06:12 BST.

This follows a generally positive day on Monday that saw prices closed up an average of 0.3%, the average being somewhat dampened by a 1.7% fall in nickel prices, excluding that the average gain would have been 0.6%, led by a 1.2% rise in aluminium prices. Copper closed up 0.7% at $5,606 per tonne.

Spot precious metals are up an average of 0.4% this morning, gold prices are up 0.2% at $1,233.50 per oz, the rest are all up 0.5%. This comes after a mixed day’s performance on Monday when palladium prices dropped 1.1%, silver and platinum prices were up around 1.1%, and gold prices were up just 0.2%.

In Shanghai this morning, copper and aluminium prices are up slightly, with copper prices at 45,220 yuan ($6,555) per tonne, while the rest of the base metals complex are down an average of 0.8%. Spot copper prices in Changjiang are up 0.1% at 45,120-45320 yuan per tonne, while the LME/Shanghai copper arb ratio is weaker again at 8.10.

Other metals in China are firmer this morning, September iron ore prices are up 0.8% at 457.50 yuan per tonne on the Dalian Commodity Exchange, while on the Shanghai Futures Exchange, steel rebar prices are up 0.4%, gold prices are up 0.5% and silver prices are up 0.9%

In international markets, spot Brent crude oil prices are up 0.3% at $51.92 per barrel as the market adjusts for a likely Organization of the Petroleum Exporting Countries (OPEC) extended deal. The yield on the US ten-year treasuries is little changed at around 2.33%.

Equities on Monday were firmer, the Euro Stoxx 50 closed up 0.1% and the Dow closed up 0.4% at 20,982. Asia has generally seen follow through buying interest this morning with the Nikkei and ASX 200 up 0.2%, the CSI 300 is up 0.1%, the Kospi is up marginally, while the Hang Seng is bucking the trend with a 0.3% decline.

The dollar index is showing weakness again with the index at 98.75, having seen a recent high of 99.89 – for now the 2017 trend is to the downside, with recent lows at 98.54. The euro is stronger at 1.0994, it looks well placed to push higher, as is the Australian dollar at 0.7425, while the sterling and the yen are flat at 1.2912 and 113.49, respectively.

In emerging market (EM) currencies, the yuan is firmer at 6.8912, as are the other EM currencies we follow, which suggests a slight risk-on bias.

There is a lot of important economic data out today – Japan’s tertiary industry activity slipped 0.2% after a 0.2% climb previously, later there is data on French and UK CPI and a host of other UK price data and leading indicators, Italian and EU GDP, German and EU ZEW economic sentiment and data on the EU trade balance. US data includes: building permits, housing starts, industrial production, capacity utilization rate and mortgage delinquencies – see table below for more details.

Chinese president Xi Jinping’s pledge of $78 billion worth of financing for infrastructure projects, implies the One Belt One Road plan is continuing and that should be long-term supportive for metals’ demand. This buoyed metals on Monday but we wait to see if the market is prepared to get bullish on the strength of it, or is it all too far down the road to be a driver now?

The firmer tone from yesterday seen in most of the metals and from last week in copper, aluminium and nickel, is looking fragile. Nickel started to lose ground yesterday, while copper and aluminium are showing some weakness this morning. Zinc and lead prices are looking more vulnerable, with lead prices this morning setting a fresh low at $2,092 per tonne – a level not seen since early January. Unless buying emerges soon, the path of least resistance looks set to remain to the downside.

Most of the precious metals are firmer, their recent price weakness appears to have prompted bargain hunting, the exception being palladium, where resistance above $820 per oz seems to be acting as a cap and lack of upside progress is encouraging profit-taking. Given our less than bright outlook for global auto demand (EU passenger car registrations fell 6.6% in April, which limited the January-April gain to 4.7%), following a bumper year last year, we would not be surprised if palladium prices consolidate for a while. For the other precious metals we remain mildly bullish, especially for silver and platinum as they have recently looked oversold.

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

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