METALS MORNING VIEW 20/06: Metals prices find support, start to rebound after risk-on trading returns

Three-month base metals prices on the London Metal Exchange were up across the board on the morning of Wednesday June 20, with the complex up by an average of 0.3%. Nickel and zinc prices led the way with gains of 0.5%, while copper was up by 0.2% at $6,843 per tonne.

This rebound follows yet another day of price weakness on Tuesday that saw the base metals complex drop by an average of 1.7% and the LME Index fall 6.2% since peaking on June 7.

Volume has been average with 5,810 lots traded as at 6.29am London time.

Precious metals were mixed this morning, with spot gold and silver prices little changed at $1,274.20 per oz and $16.32 per oz respectively, while platinum prices were off by 0.3% at $862.50 per oz and palladium prices were up by 0.4% at $972.10 per oz. This follows a day of weakness on Tuesday that saw the precious metals complex fall by an average of 1.3%.

In China, base metals prices on the Shanghai Futures Exchange were for the most part weaker, the exception was the most-traded September tin contract that was little changed, while the rest were down between 0.4% for the most-traded August aluminium contract and 1% for the most-traded August copper contract, the latter of which was at 51,790 yuan ($8,002) per tonne.

In other metals in China, the most-traded September iron ore contract price on the Dalian Commodity Exchange was down by 0.5% to 452.50 yuan per tonne. Meanwhile on the SHFE, the most-traded October steel rebar contract price fell by 0.3%, while the most-traded December gold and silver contract prices were down by 0.2% and 0.3% respectively.

Spot copper prices in Changjiang were down by 1.4% at 51,480-51,620 yuan per tonne and the LME/Shanghai copper arbitrage ratio was lower at 7.56, compared with 7.59 on Tuesday.

In wider markets, spot Brent crude oil prices were up by 0.46% at $75.38 per barrel this morning, this ahead of the Organization of the Petroleum Exporting Countries (OPEC) meeting. The yield on US 10-year treasuries has strengthened to 2.8986%, as has the German 10-year bund yield to 0.3704% – these rises in yields suggest haven buying of late may have run its course as the initial heat fades from US President Donald Trump’s latest rhetoric on tariffs.

Asian equity markets also reflect some easing in fear with markets rebounding: Nikkei (+1.10%), Hang Seng (+1.4%), CSI 300 (+0.44%), the Kospi (+1.41%) and the ASX200 (+1.08%). This follows weakness in western markets on Tuesday, where in the United States the Dow Jones closed down by 1.15% at 24,700.21, and in Europe where the Euro Stoxx 50 closed down by 0.9% at 3,435.30.

The dollar index is climbing again, it was recently quoted at 95.12 having set an intraday high on Tuesday at 95.30. The 95.30 high has now breached 95.15 highs from October and November last year, suggesting the bull market in the dollar is on course to continue. Sterling at 1.3168, leads on the downside, the euro (1.1576) and the Australian dollar (0.7402) are consolidating recent weakness, while the yen (110.19) is consolidating after Tuesday’s haven buying.

Not surprisingly given the recent increased tension over trade with the US, the yuan is weak at 6.4669 – the weakest it has been since mid-January. The other emerging market currencies we follow are generally on a back footing with the dollar strengthening.

Economic data out today includes German producer price index (PPI), UK industrial order expectations and US data on credit account, existing home sales and crude oil inventories. In addition, European Central Bank (ECB) President Mario Draghi, Bank of Japan’s Governor Haruhiko Kuroda and US Federal Reserve Chair Jerome Powell are speaking at the ECB Forum on Central Banking in Sintra, Portugal.

Most of the base metals’ prices are giving back varying degrees of the gains seen between late-May and mid-June, with prices returning to the mid-to-lower ground where prices were trading before the rallies. This suggests false upside breaks that no doubt triggered short-covering, but without evidence of stronger economic growth and in the face of trade wars, there has been little follow-through buying. Prices are now back in limbo again waiting for either stronger growth, or further supply tightness and while they wait we expect more sideways trading.

With gold prices falling and failing to catch a haven bid, while treasuries and the yen did, it does look as though the opportunity cost of holding gold is weighing on its popularity. In addition, the strong dollar will be acting as a headwind as will the, for now, improved geopolitical scene following the US/North Korea summit. The rest of the precious metals seem to be following gold’s lead, although the more industrial based silver and palladium seem to be holding up somewhat better than gold and platinum.