METALS MORNING VIEW 27/09: Metals prices firmer despite stronger dollar

Base metals traded on the London Metal Exchange are mainly firmer this morning, Wednesday September 27, with gains averaging 0.6%. Volume has been average with 6,713 lots traded as of 06:48 BST.

This after a generally weak performance on Tuesday when the complex closed down by an average of 0.6%, with copper, aluminium and nickel’s performances looking quite bearish, while the others seemed to consolidate their positions more.

Precious metals prices are up an average of 0.4% this morning with gains seen across the board, led by a 0.7% climb in platinum prices, while gold prices are up 0.1% at $1,295.13 per oz. This after a down day on Tuesday when gold, silver and platinum prices closed off by an average of 1.6% as they gave back the gains seen following North Korea’s hydrogen bomb rhetoric, while palladium was little changed.

On the Shanghai Futures Exchange (SHFE) this morning, aluminium and copper prices are down 0.2% and 0.1%, respectively, with copper prices at 50,450 yuan ($7,608) per tonne, while the rest are up by between 0.3% and 0.6%.

Spot copper prices in Changjiang are down by 0.7% at 50,390-50,590 yuan per tonne and the London/Shanghai copper arb ratio has edged higher to 7.79. The fact spot prices are showing a bigger loss than the futures highlights that the spot prices were set earlier in the day and futures prices have gone on to rebound.

The recent spell of weakness in iron ore and steel rebar prices seems to be over as January iron ore prices are up by 0.7% this morning at 471.5 yuan per tonne on the Dalian Commodity Exchange, while SHFE steel rebar prices are up by 0.9%. Gold and silver prices on the SHFE are down by 0.3% and 0.5%, respectively.

In international markets, spot Brent crude oil prices are up by 0.3% at $58.73 per barrel and have been near their highest since July 2015 and the yield on US ten-year treasuries is firmer at 2.26%, while the German ten-year bund yield is weaker at 0.42%.

Asian equities are on divergent paths this morning with the Nikkei, ASX 200 and Kospi down by between 0.1% and 0.3%, while the Hang Seng is up by 0.3% and CSI 300 is off slightly. This follows a slightly weaker session on Tuesday, where in the USA, the Dow closed down by 0.05% at 22,284.32, while in Europe, the Euro Stoxx 50 dipped by 0.04% to 3,536.38. US markets are likely to be anxious today as they await news of the proposed US tax changes.

The dollar is on the rise and was recently quoted at 93.38, the rally seems to be fuelled by US Federal Reserve chair Janet Yellen’s comments supporting a gradual rise in US interest rates. The euro at 1.1746 is under pressure, as are sterling at 1.3367, the yen at 112.76 and the Australian dollar at 0.7847.

The Chinese yuan continues to weaken, it was recently quoted at 6.6373, while all of the emerging currencies we follow are similarly weaker as the dollar rebounds.

Data out today includes EU M3 money supply and private loans, UK CBI realised sales, with US data including durables goods orders, pending home sales and crude oil inventories. In addition, US Federal Open Market Committee member Lael Brainard is speaking.

The base metals are split into two camps with copper, aluminium and nickel looking vulnerable, while lead, zinc and tin prices look to be consolidating and well placed to push higher. We see the vulnerable group as correcting recent gains and looking for the level where buying re-emerges. We are not too bearish on these metals, but feel prices had run ahead of the fundamentals. We would let the pullbacks run their course, before looking to buy again.

Gold prices have been correcting recent gains, the pullback tested the break-up level at $1,295 per oz and it gave way, which is a sign of weakness. Bouts of haven buying have since given prices some lift, but the gains have not been held on to, which suggests a market that is getting tired of the ongoing rhetoric but lack of progress over North Korea. In addition, the stronger dollar is proving to be a negative for gold prices and may well be prompting stale long liquidation. We expect the North Korean saga to lead to scale-down buying.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

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