METALS MORNING VIEW 21/06: Metals prices under pressure, support levels being tested

Three-month base metals prices on the London Metal Exchange were for the most part weaker on the morning of Thursday June 21, with the complex down by an average of 0.2%. Nickel, up by 0.3% at $15,000 per tonne, was the exception. Copper was off by 0.3% at $6,797 per tonne.

Volume has been high with 10,539 lots traded as at 7.15am London time.

This morning’s general weakness follows a more divergent performance among the base metals on Wednesday, when nickel and tin prices climbed by 1.6% and 0.9% respectively, while the rest were down by between 0.1% and 0.2%.

Precious metals were for the most part weaker with spot gold, silver and platinum prices off by between 0.4% and 0.6%, with gold at $1,263.11 per oz, while palladium bucked the trend with a 0.1% gain to $963.30 per oz.

In China, base metals prices on the Shanghai Futures Exchange were mixed: the most-traded September nickel contract led on the upside with a 1.6% gain, followed by a 0.4% increase in September tin and a 0.1% gain in August aluminium, while August copper dipped by 0.1% to 51,770 yuan ($7,995) per tonne and July lead and August zinc were both down by 0.4%.

In other metals in China, the most-traded September iron ore contract on the Dalian Commodity Exchange was up by 0.3% to 453.50 yuan per tonne. Meanwhile on the SHFE, the most-traded October steel rebar contract was up by 0.1%, while the most-traded December gold and silver contracts were down by 0.5% and 0.1% respectively.

Spot copper prices in Changjiang were up by 0.1% at 51,530-51,680 yuan per tonne and the LME/Shanghai copper arbitrage ratio was higher at 7.62, compared with 7.56 on Wednesday.

In wider markets, spot Brent crude oil prices were little changed at $74.26 per barrel this morning. The yield on US 10-year treasuries has strengthened to 2.9349%, as has the German 10-year bund yield to 0.3790% - these rises in yields continue to suggest the haven buying of late may have run its course while the initial heat fades from US President Donald Trump’s latest rhetoric on tariffs.

Asian equity markets were mixed on Thursday: Nikkei (+0.61%), Hang Seng (-1.17%), CSI 300 (-0.78%), the Kospi (-1.10%) and the ASX200 (+0.96%). This follows a mixed performance in western markets on Wednesday, where in the United States the Dow Jones closed down by 0.17% at 24,657.80, and in Europe where the Euro Stoxx 50 closed up by 0.13% at 3,439.60.

The dollar index continues to advance, it was recently quoted at 95.30 and is the highest it has been since July last year when it was on its decline from the 103.80 peak seen in January 2017. Sterling continues to weaken, it was recently quoted at 1.3137, as does the Australian dollar (0.7352), the euro (1.15530) while the yen at 110.64 is on a back footing.

Not surprisingly given the recent increased tension over trade with the US, the yuan is weak at 6.5020 – the weakest it has been since mid-January. The other emerging market currencies we follow are generally in low ground and on a back footing with the dollar strengthening.

The economic calendar is busy today with the UK public sector borrowing requirement and the Bank of England’s (BOE) interest rate decision and statement. There is also data on EU consumer confidence. US data of note includes the Philadelphia Fed Manufacturing Index, initial jobless claims, data on house prices, leading indicators, natural gas storage and the bank stress test results. In addition, there is an Organization of the Petroleum Exporting Countries (OPEC) meeting, a Eurogroup meeting and BOE Governor Mark Carney is speaking.

The base metals are generally under pressure with prices testing support levels, the exceptions are nickel that is on the rise and lead where prices are holding up relatively well. For now with the threat of trade wars undermining confidence and expected to slow growth in China, there is not much to be bullish about.

That said, over the past couple of years when sentiment has not been bullish, it has also tended not to be bearish, so we would expect dips to continue to run into support. Any resolution to the trade situation that avoids tariffs could restore confidence, so we would be wary of getting too bearish. There is also some talk that China may be looking to cut some banks’ reserve requirements ratios, which could support lending and in turn the economy.

With gold prices falling and failing to catch a haven bid, while treasuries and the yen did earlier in the week, 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. Platinum is looking extremely weak, with prices the lowest they have been since February 2016 – the fall in popularity of diesel vehicles no doubt weighing on sentiment.

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