METALS MORNING VIEW 18/05: Nickel and aluminium prices have direction; rest are listless

Base metals prices on the London Metal Exchange were diverging on the morning of Friday May 18.

The main movers were nickel, which climbed 1%, and aluminium, which dropped 0.6%. Zinc prices are down 0.3% while the rest are little changed, with copper prices at $6,869 per tonne.

Volume on the LME has been below average, with 3,276 lots traded as at 06.46 am London time.

This follows a mixed performance on Thursday where the main movers were nickel and lead, which both made gains of 1%, while aluminium prices dropped by 0.9%.

Gold, silver and platinum prices are little changed this morning, with spot gold prices off by 0.1% at $1,289.88 per oz, while palladium prices have recovered 0.4%, having dropped by 1% on Thursday. The strong dollar and US yields, no doubt, are still dominating over increased geopolitical tension.

The base metals prices on the Shanghai Futures Exchange were mixed with copper, lead and nickel prices up by 0.4%, 0.6% and 1.5% respectively with copper prices at 51,290 yuan ($8,053) per tonne, while aluminium and tin prices were down by 0.6% and zinc prices were down by 0.1%.

Spot copper prices in Changjiang were up by 0.1% at 50,970-51,070 yuan per tonne and the LME/Shanghai copper arbitrage ratio is at 7.46.

In other metals in China, iron ore prices were down by 0.6% at 478.50 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices were down by 1.3%, while gold prices were off by 0.1% and silver prices were up by 0.2%.

In wider markets, spot Brent crude oil prices were weaker at $79.49 per barrel this morning, having been above $80 per barrel on Thursday. The yield on US 10-year treasuries continues to climb and was recently quoted at 3.1085%. Meanwhile, the German 10-year bund yield has eased to 0.63%.

Equity markets in Asia were mixed on Friday: Nikkei (+0.33%), Hang Seng (+0.25%), Kospi (+0.46%), CSI 300 (-0.06%) and the ASX 200 (-0.13%). This follows a mixed performance in western markets on Thursday, where in the United States the Dow Jones closed down by 0.22% at 24,713.98, and in Europe where the Euro Stoxx 50 closed up by 0.82% at 3,592.18.

The dollar index, at 93.41 remains strong but is consolidating having set a high on Wednesday at 93.64 – the brief pullback between May 10 and May 14, appears to have just been a pause in the rally, with 95.00 now the upside target.

The other major currencies that had been weakening after the dollar strengthened were generally consolidating this morning: euro (1.1812), sterling (1.3521)and the Australian dollar (0.7522), but the yen (110.83) continues to weaken. The diverging government bond yields seem to be setting the tone, with safe-haven concerns taking a back seat.

The yuan is also consolidating (6.3677) and most of the emerging market currencies we follow are looking weaker again; the exception is the rand, which is managing to consolidate.

Today’s economic agenda includes data on Japan’s national core CPI, which climbed 0.7%, down from the previous reading of 0.9%, while data out later includes the German PPI and the WPI and the EU current account and trade balance. In addition, Federal Open Market Committee members Loretta Mester and Lael Brainard are speaking.

The base metals generally remain rangebound, volumes are lighter and the markets seem to be waiting for fresh direction from economic data that has in recent months pointed to less concerted global growth – some regional weakness has shown up, while in other areas growth has slowed. In these conditions, the metals are trading their own fundamentals more.

On balance, we think underlying sentiment is robust and that should provide support, but there seems little interest/need to chase prices higher – the summer lull seems to have arrived early.

Given considerable uncertainty over US trade and the geopolitical tensions this seems logical. With US treasury yields strengthening we need to be wary of corrections in broader markets that could lead to another risk-off moment, but in the absence of that we expect more rangebound trading. We would expect a more bullish scenario to unfold if economic data starts to pick-up again.

Silver and palladium prices seem to be holding up relatively well; platinum prices are back in low ground and gold prices are suffering because of rising US yields and dollar strength, which has increased the opportunity cost of holding gold. Emerging currencies can act as a barometer of risk appetite, given their weaker trends that may be a warning that we could see broader based risk-off.

With gold prices already weakening, gold may be seen as commodity that has already corrected and therefore is better placed to provide a safe haven again.