METALS MORNING VIEW 25/02: Metals prices pulled higher by low copper stocks, trade optimism

Last Thursday’s brief correction in metals prices was just a pause in what is turning into a strong rally, with the three-month base metals prices traded on the London Metal Exchange up by an average of 0.6% on the morning of Monday February 25.

Copper and tin prices are extending into fresh highs for the year, while the other base metals are rallying. Copper prices were up by 0.4% this morning at $6,506 per tonne, compared with $6,477 per tonne at the close on Friday.

Volume across the LME base metals complex has been strong with 10,416 lots traded as at 6.51am London time on Monday, compared with an average of around 7,900 lots traded at similar times last week.

Spot precious metals prices were firmer this morning with gold up by 0.1% at $1,329.20 per oz, compared with a previous close of $1,327.35 per oz, while silver, platinum and palladium were up by an average of 0.8%, with palladium at record highs of $1,509.40 per oz, compared with Friday’s close of $1,495 per oz.

In China, base metals prices on the Shanghai Futures Exchange were up strongly across the board with gains ranged between 1% for April aluminium and 1.7% for April copper that was recently quoted at 50,570 yuan ($7,532) per tonne, compared to 49,710 yuan per tonne at Friday’s close.

The spot copper price in Changjiang was up by 1.2% at 49,780-50,010 yuan per tonne this morning, compared with 49,780-50,010 yuan per tonne on Friday, while the London/Shanghai copper arbitrage ratio was little changed at 7.77.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was down by 1.3% at 598.50 yuan per tonne, compared with 606.50 yuan per tonne at the close on Friday. On the SHFE, the May steel rebar contract was down by 0.2% at 3,702 yuan per tonne, compared with 3,709 yuan per tonne at Friday’s close.

In wider markets, the spot Brent crude oil price was unchanged from Friday’s close at $66.91 per barrel.

The yield on US 10-year treasuries was recently quoted at 2.6654%. The yields on the US 2-year and 5-year treasuries remain inverted and were recently quoted at 2.5068% and 2.4811% respectively. The German 10-year bund yield was firmer at 0.1100%.

Asian equity markets were stronger across the board on Monday, led by China on the back of increased optimism about a US-China trade deal: Nikkei (+0.48%), Hang Seng (+0.49%), the ASX 200 (+0.31%), the CSI 300 (5.95%) and the Kospi (+0.09%).

This follows a stronger performance in western markets on Friday; in the United States, the Dow Jones Industrial Average closed up 0.70% at 26,031.81, and in Europe, the Euro Stoxx 50 closed up by 0.21% at 3,270.55.

The dollar index is pulling back from high ground when it stalled ahead of resistance at 97.70, it peaked at 97.37 on February 15 and was recently quoted at 96.37. The consolidation in the dollar has led to a firmer tone in the other major currencies we follow: the euro (1.1354), the yen (110.65), sterling (1.3085) and the Australian dollar (0.7157).

The yuan continues to strengthen and was recently quoted at 6.6974, compared with 6.7111 at Friday’s close. Most of the other emerging market currencies we follow are either firmer or are consolidating.

The economic agenda for Monday is light with data on US final wholesale inventories, although probably more newsworthy will be what Bank of England Mark Carney and US Federal Open Market Committee member Richard Clardia have to say when these two speak later on Monday.

The metals are looking robust despite continued poor economic data but progress on US-China trade talks is understandably pushing the agenda. If a trade deal looks likely then industry may well feel more confident and in turn that is likely to encourage some restocking along the supply chain, which seems to have destocked over the past nine months on the back of the trade dispute.

Last week’s cancelling of copper warrants that have left just 39,800 tonnes of copper available in the LME system will also be unnerving copper shorts and with tin stocks also low, it is not surprising that these two metals are in the driving seat.

The stronger tone in gold and silver have paused because the outlook for the global economy may be about to improve if a trade deal is nearing. Palladium prices continue to react to its strong fundamentals and platinum prices are also looking stronger, albeit if from a low base.

London Metal Exchange, Shanghai Futures Exchange, Dalian Commodity Exchange, base metals prices, rebar prices, iron ore prices
Shanghai Futures Exchange, precious metals prices

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