METALS MORNING VIEW 22/09: Base metals under pressure as corrections unfold

The base metals are for the most part weaker this morning, Friday September 22, the exceptions are tin that is up by 0.2% and zinc that is little changed, while the rest are down by an average of 1.1%. Losses are fairly tightly grouped with prices off between 0.9% and 1.5%. Three-month copper prices are down by 0.9% at $6,397 per tonne.

Volume has been relatively high across the board with 12,134 lots traded as of 06:27 BST.

This weakness follows a significant down day yesterday when prices dropped an average of 2.1%, led by a 5.6% drop in nickel and a 3% drop in zinc prices, so there was another bout of selling which has brought aluminium, lead, zinc and tin prices down from high ground and seen copper and nickel prices extend lower.

Precious metals prices are up across the board this morning on the back of a pick-up in geopolitical tensions as North Korea threatens to test a hydrogen bomb in the Pacific. Prices are up by between 0.4% for spot silver and 0.7% for platinum, with gold prices up by 0.5% at $1,297.77 per oz.

This follows a general down day on Thursday that saw losses of around 0.6% for bullion prices – gold prices set a low at S1,288.50 per oz, which did breach the $1,295 per oz former break-out level. Platinum prices were by down 0.3% and palladium prices were unchanged.

On the Shanghai Futures Exchange (SHFE) this morning, the base metals are down by an average of 2.6%, led by a 5.2% drop in nickel prices. Tin prices are off the least with a 1% drop, copper prices are down by 1.5% at 49,620 yuan ($7,528) per tonne, and lead, zinc and aluminium prices are off between 2.3% and 3%.

Spot copper prices in Changjiang are down by 1% at 49,670-49,970 yuan per tonne and the London/Shanghai copper arb ratio has eased to 7.76 from 7.79 on Thursday.

Weakness continues to hit iron ore and steel rebar prices with January iron ore prices down by 3.3% at 469.50 yuan per tonne on the Dalian Commodity Exchange, while SHFE steel rebar prices are off by 4.1%. Gold and silver prices on the SHFE are down by 0.5% and 0.9%, respectively.

In international markets, spot Brent crude oil prices are little changed at $56.42 per barrel and the pick-up in geopolitical tensions has lifted treasury prices with the yield on US ten-year treasuries easing to 2.25%, while the German ten-year bund yield is little changed at 0.45%.

Asian equities are for the most part weaker with the Kospi down 1%, the Hang Seng off 0.8%, the Nikkei and CSI 300 are off 0.2%, while the ASX 200 bucks the trend with a 0.4% gain, this despite weaker commodity prices. This follows a mixed performance on Thursday, where in the USA, the Dow closed down by 0.24% at 22,359.23, while in Europe, the Euro Stoxx 50 climbed 0.4% to 3,539.59.

The dollar’s show of strength following the US Federal Open Market Committee meeting has once again been short-lived, the index reached a high of 92.70 on Wednesday evening, but has since fallen back to 91.95. This has lent support to other currencies with the euro at 1.1972, sterling at 1.3595, the yen at 111.98 and the Australian dollar at 0.7941, which is weaker than a few days ago, but is up from earlier lows of 0.7905.

The Chinese yuan continues to weaken, it was recently quoted at 6.5889. Most of the other emerging currencies we follow are weaker in line with the stronger dollar, the exception being the rand that has firmed in recent days.

Data out today is focused on flash manufacturing and services PMI which is out across Europe and the USA, plus there is data on UK CBI industrial order expectations. In addition, European Central Bank president Mario Draghi is speaking and UK prime minister Theresa May is to make a key speech on Brexit.

The metals are looking weak as the corrections continue, copper and nickel prices have set off on their second down legs, while the rest of the metals are consolidating recent gains. Although we are broadly bullish, we have thought prices had run ahead of the fundamentals, so a period of adjustment is unsurprising and as such we would let these pullbacks run their course before looking for buying opportunities. In addition, at some stage concerns over North Korea may affect the broader markets and lead to a period of broad market risk-off and that could drag the industrial metals down further.

Gold prices have been correcting recent gains, the pullback tested the break-up level at $1,295 per oz and it gave way, which is a sign of weakness, but the latest threats from North Korea have prompted some more haven buying. The yen often acts as a haven but at some stage non-Japanese investors looking for havens may well decide that with Japan in the firing line of missiles from North Korea the yen may not be so safe and that could prompt more inflow into gold.

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