METALS MORNING VIEW 26/11: Metals prices consolidate after last Friday’s PMI-induced weakness

The three-month tin price on the London Metal Exchange stood out as the strongest performer among its peers with a gain of 1.2% this morning, Monday November 26. Three-month copper ($6,183 per tonne) and aluminium were up by 0.2%, while the rest were down by 0.3%.

Volume has been average with 5,700 lots traded as at 7.30am London time.

This morning’s mixed performance by the LME three-month base metals follows weakness last Friday, when the complex closed with losses averaging 1.8%.

The precious metals were stronger this morning, led by gains in palladium and silver of 1.3% and 1.2% respectively, with platinum prices up by 0.8% and gold prices up by 0.3% at $1,226.84 per oz.

In China this morning, the January contract prices for base metals were for the most part weaker – the exception being nickel, which was up by 0.2%. The rest were down between 0.2% for aluminium and 2.1% for zinc. Copper was down by 0.6% at 49,290 yuan ($7,093) per tonne.

Spot copper prices in Changjiang were down by 0.8% at 49,360-49,500 yuan per tonne. The LME/Shanghai copper arbitrage ratio was little changed at 7.97.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was down by 5.9% at 477.50 yuan per tonne. On the SHFE, the January steel rebar contract was also down by 4.2%.

In wider markets, spot Brent crude oil prices were firmer this morning, up by 1.6% at $59.87 per barrel but significantly weaker than the $86-per-barrel level seen as recently as early October. The yield on US 10-year treasuries was weaker at 3.0553%, as was the German 10-year bund yield at 0.3600% – both a sign of risk-off in other markets.

Asian equity markets were mixed on Monday: Nikkei (0.76%), Hang Seng (0.2%), Kospi (1.24%), CSI 300 (-0.07%) and ASX 200 (-0.78%).

This follows mixed performances in western markets last Friday; in the United States, the Dow Jones closed down by 0.73% at 24,285.95, while in Europe, the Euro Stoxx 50 was up by 0.34% at 3,137.21.

The dollar index is holding up in high ground and was recently quoted at 96.82. The yen (113.24) is weaker, the Australian dollar (0.7263) is firmer, while the euro (1.1359) and sterling (1.2817) were consolidating.

The yuan is holding in low ground at around 6.9377. The real and ringgit remain weak, while the other emerging market currencies we follow are either consolidating or showing strength, especially the rupiah.

Economic data already out shows Japan’s flash manufacturing purchasing managers’ index (PMI) was weak at 51.8, after previously being 52.9 – this follows the weakness seen in other countries last Friday. Data out later on Monday includes German Ifo business climate, UK high street lending and Chinese leading indicators. In addition, European Central Bank President Mario Draghi and Bank of England Governor Mark Carney are delivering speeches.

The underlying trend in the base metals, with the exception of nickel and tin, 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. Indeed, tin having broken higher earlier in the month saw prices slump 3.9% last Friday, which put it back in the same boat as other metals.

With the G20 meeting happening next weekend, all eyes will be on whether the US and China can make progress on trade talks and metals prices are likely to follow closely. At some stage a better outlook on trade is expected to unleash considerable pent-up demand – but for now it remains a waiting game. If no progress is made on trade then further price weakness seems likely judging by how the metals reacted to the weak PMI data on Friday.

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, as too could any deterioration in the trade talks.

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