METALS MORNING VIEW 27/09: Metals prices mixed after initial weakness

Three-month base metals prices on the London Metal Exchange were for the most part weaker during early trading on Thursday September 28, but some strength emerged after trading got underway in Europe.

Tin was bucking the trend with 0.3% gain, while the rest of the metals were down by between 0.4% for aluminium and lead and 0.9% for zinc prices, with copper off by 0.8% at $6,236 per tonne.

Total volume across the complex has been average with 9,667 lots traded as at 08.01am London time.

With the US Federal Open Market Committee (FOMC) meeting and a 25 basis-point interest rate rise out of the way, the base metals markets may have a few days to reflect their fundamentals before trading becomes thinner as China goes on holiday next week, which will be followed by LME Week.

The precious metals were firmer, with prices up by an average of 0.4%. Given the US interest rate rise you would expect prices to be weaker, but with spot gold prices at $1,195 per oz, it appears the market had already fully priced in the rate increase.

In China, the base metals prices were mirroring those on the LME, with January tin prices up by 1%, while the rest were weaker by an average of 1.1%. The most actively traded November copper contract was down by 0.9% at 50,130 yuan ($7,290) per tonne.

Spot copper prices in Changjiang were down by 0.3% at 50,560-50,620 yuan per tonne and the LME/Shanghai copper arbitrage ratio is firmer at 8.07.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was down by 0.4% at 502 yuan per tonne. On the SHFE, the January steel rebar contract was down by 1%, while the December gold and silver contracts were down by 0.4% and 0.2% respectively.

In wider markets, spot Brent crude oil prices were higher by 0.66% and were recently quoted at $82.20 per barrel. The yield on US 10-year treasuries has eased to 3.0339%, having been as high as 3.1% on Wednesday. The German 10-year bund yield has strengthened and was recently quoted at 0.5327%.

Asian equity markets were mainly weaker on Thursday: Nikkei (-0.99%), Kospi (+0.7%), the Hang Seng (-0.35%), the CSI 300 (-0.40%) and ASX200 (-0.18%). This follows a weaker performance in western markets on Wednesday; in the United States, the Dow Jones closed down by 0.40% at 26,385.28, while in Europe, the Euro Stoxx 50 was down by 0.51% at 3,415.56.

The dollar index has reacted favorably to the US rate rise with a move up to 94.58, but with the interest rate rise expected, it will be interesting to see if it holds on to its gains, especially because US President Donald Trump wants a weaker dollar and the trend since mid-August has been downward.

With the dollar stronger, most of the other major currencies we follow are weaker: the Australian dollar (0.7225), sterling (1.3113) and the euro (1.1699), although the yen is rebounding off a double bottom and was recently quoted at 112.58 – the double low being at 113.13-113.16.

The yuan has also weakened and was recently quoted at 6.8770, while the emerging market currencies we follow are quite mixed; the rupiah and ringgit were weaker, while the rest were either consolidating or showing some strength.

On the economic agenda, data already out in Germany showed GfK consumer climate edge up to 10.6 from a previous reading of 10.5. Later, there is European data that includes Germany’s consumer price index (CPI), the European Union’s M3 money supply, EU private loans and a European Central Bank (ECB) economic bulletin. Italy also has a 10-year bond auction. US releases include durable goods orders, final gross domestic product (GDP), GDP price index, goods trade balance, wholesale inventories, initial jobless claims, pending home sales and natural gas storage numbers. In addition, ECB president Mario Draghi and US Federal Reserve chair Jerome Powell are speaking.

The base metals are looking quite diverse; zinc is leading on the upside, but the metal’s prices need to clear resistance at $2,564 per tonne to suggest a break higher; copper and nickel prices are consolidating last week’s gains, but are holding up reasonably well; tin and aluminium are trading sideways, while lead is weaker. Key now will be whether there will be further short-covering ahead of the week long holiday in China.

Overall, in this climate of uncertainty, consumers and would-be buyers may not feel in any hurry to chase the market higher – shorts on the other hand may be more nervous, especially because spreads are tighter. As such, we expect choppy trading to continue.

Gold prices are stuck in a sideways trading. Given escalating trade tensions, rising oil prices and some record breaking US equity markets of late, it may be that safe-havens will be needed again before too long and at these price levels gold may look a cheaper safe-haven. Palladium led the more industrial precious metals higher last week, but while it continues to strengthen, platinum and silver are now consolidating their gains.

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