METALS MORNING VIEW 22/03: Metals prices retreat as risk-off spreads

After last week’s stronger tone in the base metals, this week is seeing some weakness with the metals trading on the London Metal Exchange down an average of 0.5% this morning, Wednesday March 22.

Nickel leads the way with a 1.6% fall in three-month prices, while zinc prices are little changed, aluminium prices are bucking the trend with a 0.2% rise to $1,926 per tonne and copper prices are off 0.5% at $5,745 per tonne.

Volume has been higher than average with 8,340 lots traded as of 06:15 GMT. This morning’s weakness follows on from a mixed day’s trading on Tuesday that saw prices close down an average of 0.4%, but that was skewed by copper and zinc prices falling 1.6%.

With equities also off on Tuesday and overnight it does look as though markets are experiencing some broad-based risk-off.

Gold and the other precious metals’ prices are little changed this morning with spot gold prices at $1,246 per oz, but that does come after gains on Tuesday that saw precious metals prices close up an average of 0.4%.

In Shanghai this morning, the base metals on the Shanghai Futures Exchange are down an average of 1.6%, with copper, zinc and nickel prices seeing falls of 2-2.4%, while aluminium prices are off the least with a 0.3% drop. Copper prices are down 2.2% to 46,590 yuan per tonne. Spot copper prices in Changjiang are down 1.2% at 46,360-46,560 yuan per tonne and the LME/Shanghai copper arb ratio has weakened to 8.11, suggesting the fall in Shanghai prices is outpacing the fall in LME prices.

In other metals in China, September iron ore prices are down 5.9% on the Dalian Commodity Exchange, while on the SHFE, steel rebar prices are down 4.3%, while gold and silver prices are up 0.7%. In international markets, spot Brent crude oil prices are off 0.5% at $50.58 per barrel and the yield on US 10-year treasuries is at 2.41%.

Equities showed weakness on Tuesday with the Euro Stoxx 50 closing down 0.2% and the weakness accelerated in the USA with the Dow closing down 1.1%. Asia has followed suit with the Nikkei off 2.1%, the Hang Seng is off 1.4%, the CSI 300 and Kospi are down 0.5% and the ASX 200 is down 1.6%.

In FX, the dollar index is weaker at 99.68, conversely the euro is firmer at 1.0810, as is the sterling at 1.2497 and the yen at 111.38, while weaker commodity prices are weighing on the Australian dollar at 0.7667. The yuan is firmer at 6.8644, while risk-off in broader markets seems to be weakening the other emerging market currencies we follow.

On the economic agenda, Japan’s all industries activity edged up by 0.1%, later there is data on the EU current account, US house price index, existing home sales and crude oil inventories – see table below for more details.

Generally, underlying sentiment in the base metals seems to be mildly bullish in that prices are for the most part holding up well, dips are being well supported, but the upside is being capped by profit-taking and forward selling. However, the metals are not immune to broad-based risk-off and that seems to have picked up momentum this week, equities appear to be under more pressure than of late, there is talk of the reflation trade being unwound and even the dollar has struggled since last week’s US interest rate rise. Aluminium and tin seem to be holding up well, while the rest are showing some weakness to varying degrees, especially nickel. Overall, we would let this show of weakness run its course, but at present we still expect dips to be well supported and for the underlying bull markets to continue down the road.

After the Dutch election it looked as though geopolitical uncertainty in Europe may settle down for a while and that could have removed one of the bullish drivers for gold prices. However, risk-off and the weaker dollar, seems to be seeing some rotation out of other assets into gold and the other precious metals are following.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

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