METALS MORNING VIEW 25/05: Metals prices consolidate after earlier weakness

Three-month base metals prices on the London Metal Exchange were for the most part weaker on the morning of Friday May 25, down between 0.2% and 0.6%, with copper down by 0.6% at $6,872 per tonne. Zinc was the single exception, up by a marginal 0.1%.

Volume on the LME has been average, with 6,612 lots traded as of 7.34 am London time.

This follows a general day of firmness on Thursday, when all the metals with the exception of tin were up by an average of 1.1%, while tin prices were down by 0.9%.

Gold and silver prices were down either side of 0.3%, with spot gold prices at $1,302.65 per oz, having jumped on news that the US/North Korean Summit had been called off by President Donald Trump. The platinum group metals (PGMs) were up by around 0.3%.

The metals in China were generally firmer this morning, led by a 1.7% gain in nickel prices, with aluminium, lead and zinc up either side of 0.8% and copper prices up by 0.3% at 51,510 yuan ($8,061) per tonne, while tin prices are bucking the trend with a 0.4% decline.

Spot copper prices in Changjiang were up by 0.4% at 51,290-51,420 yuan per tonne and the LME/Shanghai copper arbitrage ratio remains unchanged at 7.49.

In other metals in China, iron ore prices were down by 0.9% at 453.50yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices were up by 0.8%, while gold and silver prices were up by 0.7% and 0.5% respectively.

In wider markets, spot Brent crude oil prices were down by 0.53% at $78.39 per barrel this morning. The yield on US 10-year treasuries has eased further and has dropped back below the 3% level to 2.9813% and the German 10-year bund yield has eased to 0.46%.

Equity markets in Asia were for the most part weaker on Friday. The Hang Seng was down by 0.47%, the CSI 300 was off by 0.36%, the ASX 200 is down by 0.07% and the Kospi is down by 0.21%, while the Nikkei is up by 0.06%. This follows a weaker performance in western markets on Thursday, where in the United States the Dow Jones closed down by 0.30% at 24,811.76, and in Europe the Euro Stoxx 50 closed down by 0.57% at 3,521.76.

The dollar index, at 93.91, continues to consolidate after Wednesday’s fresh gains when it set a high at 94.19. On the charts, there is likely to be resistance between 94.22 and 95.15.

The other major currencies are also consolidating above recent lows: euro (1.1702), sterling (1.3358), yen (109.38) and the Australian dollar (0.7561).

The yuan is flat at 6.3873, as are the emerging market currencies we follow. With the US treasury yields falling again the weakness in currencies seems to have been put on hold.

Today’s economic agenda is busy: Japan’s core CPI has eased to 0.5%, from 0.6%, later there is data on German Ifo business climate, UK data includes a second reading of GDP, business investment, high street lending and index of services and in the US there is data on revised University of Michigan consumer sentiment and inflation expectations. In addition, Bank of England governor Mark Carney and German Bundesbank president Jens Weidmann are speaking.

The base metals are split into three camps, with tin prices falling and looking vulnerable while lead and nickel prices are climbing and the rest are meandering sideways with a slight upward bias. Without stronger economic growth, which seems unlikely with the continuing uncertainty over the world’s trade relations with the United States, sentiment is likely to remain neutral.

Gold prices ran up on news that the summit between the US and North Korea was cancelled and prices are consolidating, the weaker treasury yields may provide support while they last. Overall the precious metals appear to have found support, we wait to see if there is follow through buying pressure.

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