METALS MORNING VIEW 26/10: Metals prices under pressure while dollar strengthens, broader markets show weakness

Three-month base metals prices on the London Metal Exchange were down across the board by an average of 0.7% during morning trading on Friday October 26.

Concerns about the broader markets and continuing uncertainty over trade and sanctions have capped the upside for those metals trying to move higher, while it has pushed the weaker metals prices lower.

Nickel leads on the downside with a 1.6% fall to $11,945 per tonne, which is the lowest it has been since December 27, and aluminium is extending multi-month losses as well. Copper was recently quoted at $6,146 per tonne, which is down by 0.8% from Thursday’s close.

The precious metals were little changed this morning with the gold price at $1,232.91 per oz and the palladium price at $1,102.50 per oz. This after a general day of weakness on Thursday that saw the precious metals complex close down by an average of 0.8%, skewed by a 2.2% fall in palladium after the metal’s price corrected from record highs.

In China, base metals prices on the Shanghai Futures Exchange were mixed with the December copper and lead contracts bucking the general weakness with gains of 0.2% and 0.9% respectively, with copper at 49,850 yuan ($7,175) per tonne. The rest of the SHFE base metals prices were down between 0.3% for tin and 1.9% for nickel.

Spot copper prices in Changjiang were up by 0.6% at 49,760-50,030 yuan per tonne and the LME/Shanghai copper arbitrage ratio was firmer at 8.11, compared with 8.097 on Thursday, which suggests prices in China are somewhat more buoyant than those on the LME. That said, the fact spot prices were up more than futures prices now suggests the tone has eased as the Chinese day has progressed.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was up by 0.7% at 535.50 yuan per tonne. On the SHFE, the January steel rebar contract was up by 1.1%, while the December gold was up by 0.1% and December silver contract was down by 0.3%. In recent days, iron ore and steel rebar have been more positive than the base metals – so maybe there is some confidence returning to the grassroots of the economy – we wait to see if that flows into the broader markets.

In wider markets, spot Brent crude oil prices have stabilized and were recently quoted at $76.37 per barrel, down by 0.32%. The yield on US 10-year treasuries was weaker at 3.1059%, as was the German 10-year bund yield at 0.3800%. The weaker yields suggest demand for treasuries is up – which is another sign of haven buying.

Asian equity markets were for the most part down on Friday, thereby choosing not to follow the gains in western markets on Thursday. The exception was Australia’s ASX 200 that was little changed, while the rest were down: Nikkei (-0.40%), Kospi (-1.75%), the Hang Seng (-0.97) and the CSI 300 (-1.25%). This follows a rebound in western markets yesterday; in the United States, the Dow Jones closed up by 1.63% at 24,984.55, while in Europe, the Euro Stoxx 50 was up by 1.09% at 3,164.40. The weakness in Asia appears to be following the after-hours weakness in Amazon and Google share prices after their results disappointed the market.

The dollar index is on the climb again, it was recently quoted at 96.64 and is closing in on the August peak at 96.99, so no let-up in the headwind affecting metals’ prices.

With the dollar strengthening, most of the other major currencies we follow are weaker: euro (1.1368), sterling (1.2810) and the Australian dollar (0.7035), although the yen is treading water as it is probably attracting some haven buying, judging by the pick-up in gold and dip in treasury yields. It was recently quoted at 112.18.

The yuan continues to weaken and was recently quoted at 6.9561 – the weakness will be helping to alleviate some of the stress from tariffs. In the emerging market (EM) currencies we follow, the ringgit has extended losses, the peso and rupiah are holding in low ground, but are looking vulnerable, while the others are consolidating off the lows. We would be more concerned if all the EM currencies were weakening together.

Data already out today shows Tokyo’s core consumer producer price index came in at 1%, as expected and unchanged from the previous reading and German GfK consumer climate at 10.6 was also unchanged for the previous reading. Data out later focuses on the US with advanced gross domestic product (GDP), GDP prices and the University of Michigan consumer sentiment and expectations. In addition, European Central Bank president Mario Draghi is speaking at 3pm London time.

The renewed weakness in nickel and aluminium shows that bases have not been secured yet and that there may be more room on the downside and with the dollar challenging resistance that could well unfold. Even though some metals have tried to push higher there does not seem to be much follow through interest, which given the underlying uncertainties is not surprising, especially now that US equities are looking vulnerable. As such, the waiting game continues.

Palladium prices are correcting from their energetic climb to recent record levels, gold prices are holding up well and seem to be getting more investor interest, as well as being supported by short-covering. Silver and platinum are looking less driven than gold, but seem content to follow at a distance.

London Metal Exchange, base metals prices, precious metals prices

Shanghai Futures Exchange, base metals prices, precious metals prices

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