METALS MORNING VIEW 17/05: Metals off to a quiet start as market weighs up US political concerns

The base metals prices on the London Metal Exchange are, for the most part, little changed this morning, Wednesday May 17, the exception is nickel where three-month prices are down 0.9% at $9,085 per tonne.

Copper and aluminium prices are off a few dollars, with copper at $5,615 per tonne, while lead, zinc and tin prices are up between 0.1% and 0.3%. Volume has been below average with 4,025 lots traded as of 06:10 BST.

This follows a mixed day on Tuesday where aluminium prices rallied 1.1%, copper prices closed up 0.3%, tin prices were up 0.2% and nickel prices were unchanged, while lead prices fell 1.9% and zinc prices were off 0.7%. The lead market seems to have taken over the baton from nickel as being the metal showing the most weakness.

Spot gold and platinum prices are up 0.4% and 0.3%, respectively, this morning, with gold prices at $1,242.51 per oz, while silver prices are little changed at $16.85 per oz and palladium is off 0.3% at $793 per oz. This follows a positive day on Tuesday, when the precious metals complex closed up an average of 0.8%. Concerns over US president Donald Trump’s handling of security information seem to be the latest area that markets are getting concerned about.

In Shanghai this morning, most of the base metals trading on the Shanghai Futures Exchange are firmer, the exceptions are lead and nickel prices that are off 0.1% or less. The rest are up between 1.1% for tin, and 0.3% for copper and aluminium prices, with copper prices at 45,440 yuan per tonne. Spot copper prices in Changjiang are up 0.1% at 45,280-45,380 yuan per tonne, while the LME/Shanghai copper arb ratio is slightly easier at 8.09.

Other metals in China, however, are showing stronger rebounds today, September iron ore prices are up 5% at 479.50 yuan per tonne on the Dalian Commodity Exchange, while on the SHFE, steel rebar prices are up 3.9%, gold prices are up 0.5% and silver prices are up 0.3%. If money is returning to iron ore and steel, then the shake-out in Chinese metals markets may have run its course.

In international markets, spot Brent crude oil prices are off slightly at $51.22 per barrel as the market consolidates after recent gains. The yield on the US ten-year treasuries has weakened to 2.29%, down from 2.33%, this time yesterday. Again the lower yield, firmer gold and yen, all point to a pick-up in haven demand.

Equities on Tuesday saw the Euro Stoxx 50 and Dow closing little changed, with the latter at 20,979.75. Asia is weaker this morning, the ASX 200 is down 1%, the Nikkei is off 0.6%, the CSI 300 is down 0.3% and the Hang Seng and Kospi are down 0.2%.

The dollar index has plunged lower to 97.98, it has since April 24 been testing and breaching the support line underpinning the lows since December last year, but Tuesday’s move has finally seen the support line broken, this no doubt on political concerns in Washington DC. Conversely the euro has surged to 1.1104, the yen is stronger at 112.39, as is the Australian dollar at 0.7423, while the sterling is flat at 1.2932. It seems that political stability is shifting from the US to Europe judging by the currency moves.

The weaker dollar is giving emerging market (EM) currencies some strength too with the yuan at 6.8760 and the rupee at 64.04 and near recent highs.

Data out today shows slightly weaker Japanese core machinery orders and revised industrial production data , later there is data on Italian trade balance, the UK monthly employment report, EU final CPI and US crude oil inventories – see table below for more details.

Copper and aluminium prices are pushing ahead with their rebounds, tin prices are edging higher, while the others that have been showing more weakness of late, are getting some lift this morning, having tested support levels yesterday. Zinc and nickel prices held above support, while lead prices set fresh lows at $2,080.50 per tonne. Sentiment seems to have turned less bearish given the latest talk about infrastructure spending in China, which has given iron ore and steel rebar prices the biggest boosts, but which also seem to have flowed over into the base metals too. In addition, the weaker dollar should be a bullish factor.

Gold prices are leading the rebound in the precious metals sector, silver is following gold’s lead, as is platinum, while palladium is consolidating - it has been in high ground for a long time now, but may be experiencing some profit-taking given some deterioration in auto sales data – something we have been warning about for some time. Political developments in the USA and the potential that it could worry equity markets, may well provide a tailwind for gold prices, along with the weaker dollar.

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