METALS MORNING VIEW 19/11: Metals disappointed by lack of trade progress, but most prices hold up well

Disappointment that United States/China trade talks are not making progress has once again dampened sentiment in the London Metal Exchange's three-month base metals prices to the extent there has been little follow through to the strength seen at the end of last week.

Nickel has taken the brunt of the disappointment this morning, Monday November 19, and is showing a drop of 1.1% to $11,265 per tonne – earlier in the day it had set a fresh low for the year at $11,215 per tonne. Zinc and tin are only just in positive territory with gains of 0.2% and 0.1% respectively, while the rest of the complex are down by between 0.1% and 0.2%, with copper off by 0.2% at $6,228 per tonne.

Volume has been above average with 7,069 lots traded as at 07.12am London time.

Precious metals were for the most part little changed with spot gold prices off by 0.1% at $1,219.70 per oz – the exception being palladium which was up by 0.4% at $1,178.80 per oz, having earlier this morning set a fresh record high at $1,185 per oz.

In China this morning, the January contracts for base metals prices were for the most part firmer, the exception being nickel that was off by 1.3%, while the rest were up by an average of 0.6% – ranged between a 0.2% gain in tin and a 0.9% rise in lead prices. Copper prices were up by 0.4% at 49,790 yuan ($7,176) per tonne.

The fact that most SHFE prices were up while most LME prices were lower this morning, is due to the fact that SHFE prices were initially playing catch-up with the 1.1% average gain in the LME base metals prices seen last Friday.

Spot copper prices in Changjiang were up by 0.4% at 49,690-49,850 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 8.00.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was up by 1.6% at 527.50 yuan per tonne. On the SHFE, the January steel rebar contract was off by 1.8%.

In wider markets, spot Brent crude oil prices were little changed at $67.35 per barrel. The yield on US 10-year treasuries was weaker at 3.0754%, while the German 10-year bund yield was higher at 0.3800%.

Asian equity markets were generally firmer on Monday: the Nikkei (0.65%), Hang Seng (0.54%), the CSI 300 (1.13%) and the Kospi (0.39%), while the ASX 200 was weaker (-0.641%).

This follows mixed performances in Western markets last Friday; in the US, the Dow Jones closed up by 0.49% at 25,413.22, while in Europe, the Euro Stoxx 50 was down 0.30% at 3,180.74.

The dollar index is consolidating after its recent pullback and was recently quoted at 96.50, this after a high of 97.70 on November 12. Conversely, the other major currencies are generally consolidating after recent rebound attempts: the euro (1.1405), the yen (112.77) and the Australian dollar (0.7311), although sterling is still rebounding and was recently quoted at 1.2853.

The yuan is holding in low ground at around 6.9420. Most of the other the emerging currencies we follow are firmer, the exception being the ringgit that is holding in low ground.

Today’s economic agenda is light, with data already out showing Japan’s trade deficit grew to $4 billion after higher oil prices increased the value of imports. Later there is data from the European Union on current account and the US National Association of Home Builders housing market index. In addition, there is a European Central Bank financial stability review, a Eurogroup meeting, a German Bundesbank monthly report and US Federal Open Market Committee member John Williams is speaking.

Given the disappointing start to the day, the LME metals are for the most part looking well placed to extend gains – the exception is nickel that remains depressed. Key will be whether overhead supply is waiting to sell into the strength. For now US/China trade uncertainty dominates, but while lack of progress on trade is dampening sentiment, the fundamentals continue to tighten. At some stage a better outlook on trade is expected to unleash considerable pent-up demand – but for now it remains a waiting game.

Gold prices have rebounded after the recent correction and prices are now mid-range between last November 13’s low and recent resistance above $1,240 per oz. Silver and platinum are following gold’s lead from a distance, while palladium prices continue to trade their own strong fundamentals.

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