METALS MORNING VIEW 18/09: Dip buying emerges across the base metals

Volume has been slightly above average with 7,058 lots traded as of 06:30 BST. Lead and zinc prices appear to have found strong enough support for prices to rally and the other metals seem to have found support with some buying emerging this morning.

This follows a split performance on Friday, when copper, aluminium, nickel and tin closed off by an average of 0.5%, while lead and zinc prices rallied an average of 1.4%.

In precious metals this morning, gold prices are off by 0.2% at $1,317.30 per oz, while the more industrial precious metals are firmer, with silver and platinum prices up by 0.1% and palladium prices up by 1.4% at $935.90 per oz. This follows price weakness on Friday when prices closed down an average of 1.2%.

On the Shanghai Futures Exchange (SHFE) this morning, aluminium and nickel prices are off 0.6% and 0.5%, respectively, while the others are seeing gains: lead (+2%), zinc (+1.3%), tin (+0.1%) and copper (+0.3%) – with copper prices at 50,560 yuan ($7,715) per tonne. Spot copper prices in Changjiang are up 0.2% at 50,480-50,680 yuan per tonne and the London/Shanghai copper arb ratio has eased to 7.71, from 7.74 on Friday.

While some of the base metals may be running into some buying, the steel metals are still under pressure with steel rebar prices on the SHFE and January iron ore prices on the Dalian Commodity Exchange both down by 1.5%. Gold and silver prices on the SHFE are off by 0.7% and 0.5%, respectively.

In international markets, spot Brent crude oil prices are up by 0.38% at $55.69 per barrel and the yield on US ten-year treasuries has firmed to 2.20%, while the German ten-year bund yield has climbed to 0.43%.

Asian equities this morning are buoyant, led by a 1.3% gain in the Kospi, the Hang Seng is up by 1.1%, the ASX 200 is up by 0.5% and the CSI 300 is up by 0.4%. This suggests geopolitical concerns are on a back footing again. This follows a strong session on Friday in the USA where the Dow closed up by 0.2% at 22,268.34, while in Europe, the Euro Stoxx 50 dropped by 3.1% to 3,515.55.

The dollar index’s rebound has halted for now – at 91.88, the index is below Thursday’s rebound high of 92.66. Sterling is racing higher at 1.3593 as pressure builds in the UK for a rate rise; the euro is consolidating at 1.1944, the recent high being 1.2092; the yen is weaker at 111.24 and the Australian dollar at 0.8027 is looking strong. As such, the recent rebound in the US dollar seems to have been just a counter trend move and a weaker dollar should help underpin commodity prices.

The Chinese yuan has been weakening since September 8 – it was recently quoted at 6.5512, the recent peak being 6.4345. The other emerging market currencies have become choppier, but are looking relatively strong again.

Data out today includes UK house price index that fell 1.2%, after a 0.9% fall previously, later there is data on the Italian trade balance, EU CPI, there is a Bundesbank monthly report, data on US housing with the NAHB housing market survey and US TIC long term purchases. In addition, Bank of England governor Mark Carney is speaking at the International Monetary Fund.

The corrections in the LME base metals appear to have run their course with the recent dips attracting buying. Lead and zinc are leading the rebounds and underlying tails, plus this morning’s price gains, suggest buying is returning across the complex. We have been on the lookout for base building and another buying opportunity, which may now be unfolding. We wait to see if follow-through buying emerges as the week progresses.

Gold prices were weaker last week and they have been consolidating in recent days, but with prices edging below the 20-day moving average this morning, further weakness may follow. With equity markets on the rise it suggests haven demand is on a back footing and while that is the case, gold prices may well consolidate at lower levels for a while. We do expect dips to remain well supported as the North Korean situation seems likely to escalate again before a solution is found. Silver and platinum prices are looking weaker too, while palladium prices are holding up well.

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