METALS MORNING VIEW 23/11: Metals prices under pressure; market awaiting direction from flash PMI data

The three-month lead price on the London Metal Exchange was slightly firmer this morning, Friday November 23, while the rest of the complex was down by an average of 0.6%. Zinc led the decline with a 1.2% fall, while copper was off by 0.8% at $6,217 per tonne.

Volume has been high with 11,796 lots traded as at 7.24am London time – the bulk of which has been in nickel, where 6,902 lots have traded. The LME three-month nickel price was down by 1.1% at $10,835 per tonne, having earlier set a fresh low for the year at $10,750 per tonne.

There was similar weakness in the precious metals this morning, with the complex down across the board by an average of 0.5%. The spot gold price was down by 0.3% at $1,223.89 per oz.

In China this morning, the January contract prices for base metals were for the most part weaker – the exceptions being aluminium and lead, the latter of which was up by 1%. The rest were down between 0.1% for copper, which was at 49,460 yuan ($7,133) per tonne, and 2.9% for nickel. Tin was also down heavily, off by 2.1%, while zinc was down by around 1%.

Spot copper prices in Changjiang were up by 0.5% at 49,710-49,900 yuan per tonne – the fact that spot prices are higher than futures prices suggests the weakness came later in the day. The LME/Shanghai copper arbitrage ratio was firmer at 7.97 on Friday after 7.95 a day earlier.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was down by 4.6% at 497 yuan per tonne. On the SHFE, the January steel rebar contract was also down by 2.6%.

In wider markets, spot Brent crude oil prices were weaker this morning, down by 0.59% at $62.15 per barrel and significantly weaker than the $86-per-barrel level seen as recently as early October. The yield on US 10-year treasuries was firmer at 3.0696%, as was the German 10-year bund yield at 0.3700%.

Asian equity markets were mixed on Friday, with the CSI 300 Index (-2.21%), the Kospi Index (-0.61%) and the Hang Seng Index (-0.35%) showing weakness, while the ASX 200 was stronger (+0.44%).

In western markets on Thursday, markets in the United States were closed to mark the Thanksgiving Day holiday, while in Europe, the Euro Stoxx 50 closed down by 0.86% at 3,126.67.

The dollar index was slipping again this morning and was recently quoted at 96.44. The other major currencies we follow were for the most part slightly firmer: euro (1.1413), the yen (112.85), sterling (1.2868) and the Australian dollar (0.7248).

The yuan is holding in low ground at around 6.9412. Apart from the real and ringgit that remain weaker, the other emerging market currencies we follow are either consolidating or showing strength, especially the rupee. This shows the recent stress is focused on mature markets.

The economic agenda is busy on Friday with the focus on flash manufacturing and services purchasing managers’ index (PMI) data that is out across Europe and the US. Earlier, there was data on German final gross domestic product that was confirmed as being down by 0.2%.

The underlying trend in the base metals, with the exception of nickel, remains the same with prices oscillating sideways. The metals that have either broken higher, like tin, or have looked well place to push higher, like copper, have been capped by overhead supply. At some stage a better outlook on trade, which could be just tweet on Twitter away, is expected to unleash considerable pent-up demand – but for now it remains a waiting game. Today’s flash PMI data may provide some direction.

The price of gold is holding up in relatively high ground and silver and platinum are following its moves, while palladium is consolidating just off record highs. There seems to be a growing view that the US Federal Reserve may pause its interest rate rises, which could lead to a weaker dollar and in this more jittery equity market environment that could boost investment demand for gold.

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