METALS MORNING VIEW 19/04: Metal prices higher on broad-based commodity rally

After the eventful rally on Wednesday, both the base and precious metals complexes have continued their upward momentum in the morning of Thursday April 19 with a broad-based commodity rally supporting all metals prices higher.

Gains on base metals prices have averaged 1.2%, while precious metals have seen a 0.3% rise as of 6.27am London time.

Trading volume on the London Metal Exchange is significantly higher than on the previous day, with 14,776 lots already traded at the time of writing. The high trading volume indicates an active market that is supporting the current bullish trend.

The LME three-month nickel price is up 3%, followed by sanctions-hit aluminium at 2.3%, while the rest of its peers are up 0.5% this morning. Aluminium prices continue to rise and remain well bid amid continued concerns of a supply crunch due to US sanctions against Russian aluminium producer Rusal. But nickel has outshone the light metal after the price surged 6.9% on Wednesday amid sanction hysteria. The metal has been subjected to panic buying and wild (potentially baseless) speculation that fresh US sanction is imminent against Norilsk which is part-owned by Russian tycoon Oleg Deripaska.

Palladium is on the same page, with a sharp U-turn from the April 6 low at $897 per oz and it is now trading comfortably at $1,037.50 per oz, up 0.2% this morning. The bullish vibe runs in platinum too, up 0.8% while gold is unchanged at $1,351.25 per oz and silver traded higher, perhaps on a short-covering rally towards $17.23 per oz. The weak dollar index has languished at 89.60 for a while and provided the metals complex with a sufficient tailwind to continue higher.

In currencies, the euro and sterling are down 0.1% while the Japanese yen weakened to 107.21 after geopolitical tensions eased between the United States and Russia over the alleged chemical attack in Syria. Currencies in developing economies such as the Brazilian Real, Indonesian rupiah and South African rand are a touch higher too because the outlook on trade friction between the US and China has lightened up.

Similarly, the outlook and prospect of an improved macroeconomic backdrop has fueled the global equity market higher. Both the European and US equity indexes secured gains, with the UK FTSE 100 up 1.26% while US S&P500 gained 0.08% to settle above 2,700 points yesterday. In the early Asian trading session, the Hang Seng Index lead the rest of its peers after it rose 0.98%, ASX 200 up 0.33% and Nikkei gained 0.15%.

Metals prices on the Shanghai Futures Exchange made strong gains, with the base metals prices up an average 2.2%. Leading the gains are nickel and aluminium at 3.1%, followed by zinc and lead at 2.6% and 2% while copper managed to rise by 1.9% and tin, struggling to replicate similar gains, is up a modest 0.2%. The positive first-quarter Chinese GDP number, strong retail sales and the surprise cut by China’s central bank in bank reserve ratio requirements have pushed metals demand. Rebar prices on the SHFE have also risen strongly, up 1.4% at 3,494 yuan per tonne. On other metals, the September 2018 iron ore contract rose 4.9% and currently trades at 468 yuan per tonne.

Economic data overnight is light, with employment numbers from Australia coming below market consensus but the overall unemployment rate is stable at 5.5%. Later today, market focus will turn to UK retail sales, the US Philly Fed manufacturing index and unemployment claims. Several Federal Reserve members are due to speak, including Brainard, Quarles and Mester.

The sharp swing higher in aluminium and nickel prices are dragging the rest of the base metals higher too. Recent economic data from both China and the US remained robust, which suggests the health of the global economy is truly well and expanding on the back of a co-ordinated concerted growth. This has supported risk appetite and drowned out previous uncertainties such as trade frictions and geopolitical tensions in the Middle East as mere market noise. Even though we continue to see higher prices, the current rally in both aluminium and nickel could get volatile and vulnerable to bouts of profit-taking.

Precious metals prices should continue to consolidate higher, with silver the preferred choice among risk-averse investors. This is evident since the gold/silver ratio has declined to 78.28 from the April high of 82.55. Meanwhile, the platinum group metals are holding up well and continue to benefit from the broad-based commodity rally.

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