METALS MORNING VIEW 16/10: Copper climbs to three-year high

Volume has been strong with 10,115 lots traded as of 07:01 BST.

This morning’s trading follows a more diverse performance on Friday when nickel prices surged 4.8% to $11,720 per tonne, copper prices closed up 1.2% and zinc prices were firmer by 0.8%, while aluminium prices were little changed and lead and tin prices were down either side of 0.7%.

Gold, silver and platinum prices are little changed this morning with spot gold prices at $1,303.17 per oz, while palladium prices continue to rally with a 0.9% gain to $997.10 per oz. This follows solid gains on Friday that ranged from 0.9% for gold and 2.9% for palladium, with silver and platinum up 1.1% and 1.4%, respectively.

In Shanghai, aluminium and zinc prices on the Shanghai Futures Exchange (SHFE) are down by 0.2% and 0.6%, respectively, while the rest are up between 0.3% for lead prices and 1.8% for nickel prices. December copper prices are up by 1.1% at 54,020 yuan ($8,210) per tonne. Spot copper prices in Changjiang are also firmer, up by 0.7% at 53,750-54,300 yuan per tonne while the London/Shanghai copper arbitrage ratio has eased to 7.69, after 7.75 on Friday.

The steel-orientated metals in China appear to have been bullish again this morning with iron ore prices rallying by 2.2% to 456 yuan per tonne on the Dalian Commodity Exchange and steel rebar prices on SHFE are up by 2%, while gold and silver prices are up by 0.4% and 0.3%, respectively. With iron ore and steel rebar prices heading higher again that should bode well for sentiment.

In international markets, spot Brent crude oil prices are up by 1.12% at $57.80 per barrel – prices are up on news that Iraqi forces have moved to secure the Kirkuk oil fields. The yield on US ten-year treasuries has eased to 2.29% and the German ten-year bund yield is weaker at 0.40%, as the International Monetary Fund meeting has a generally positive ring to it with regards to the outlook for the global economy.

Equities in Asia are for the most part higher, led by a 0.9% rise in the Hang Seng, the ASX 200 is up by 0.6%, the Nikkei is firmer by 0.5%, the Kospi is up by 0.3%, while the CSI 300 is little changed. This follows a quiet performance on Friday, where in the USA, the Dow closed up by 0.13% at 22,871.72; while in Europe the Euro Stoxx 50 closed down by 0.03% at 3,604.55.

The dollar index is consolidating today around the 93.16 level, the recent trading range being 91.01-94.27. We wait to see if the latest pullback was a pause in an emerging upward trend, or a sign that the rebound had stalled. The euro is consolidating at 1.1806, sterling is firm at 1.3283, as are the yen at 111.89 and the Australian dollar at 0.7877.

The Chinese yuan has been firmer since the start of October but has been consolidating in recent days – it was recently quoted at 6.5762. The Mexican peso remains weak, while the other emerging currencies are for the most part firmer.

Data out already shows the Chinese producer price index (PPI) for September climbing 6.9%, after a 6.3% rise previously, while its consumer price index (CPI) dipped to 1.6% from 1.8%, but this lower reading was within market expectations. Meanwhile, Japanese revised industrial production was 2%, down slightly from the initial reading of 2.1%. Data out later includes EU trade balance, US Empire State manufacturing and the Federal budget balance.

We have had copper and nickel in focus as being the two metals with potential room on the upside and that has played out with these two showing the strongest percentage gains in recent days. Copper prices have pushed up to fresh highs – to levels not seen since September 2014 – while nickel prices are still some $600 per tonne below the summer highs. The rest of the base metals are trading up in high ground, but there does seem to be supply around that needs to be absorbed before prices can push higher. They remain well placed to extend higher and a rebound in China’s iron ore and steel prices, combined with generally good data may well be enough to keep buying pressure alive. We remain quietly bullish, but expect trading to become choppier when prices run into more bouts of scale-up selling.

All the precious metals are looking firmer and with oil and the base metals stronger too, it does look as though this is a commodity-wide move. We would watch the dollar though to see which direction it heads off in after this bout of consolidation.

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