METALS MORNING VIEW 28/03: Base metals prices bearish on deteriorating risk sentiment

London Metal Exchange three-month base metals prices continue to produce sluggish price action, down 0.2% on average in the morning of Thursday March 28.

Copper bucked the trend with a mild gain of 0.1% while aluminium was unchanged at $1,903 per tonne. But LME zinc and lead prices were down 0.1% while nickel and tin were down 0.5%.

Trading volume was fairly subdued at 4,325 lots as of 6:48am London time on Thursday, well below last week’s average of 5,684 lots.

The precious metals price complex produced an average gain of 0.2% in the early Asian trading session this morning, but prices have since come under selling pressure at the time of writing. Gold and silver prices were steady at $1,311.17 per oz and $15.31 per oz respectively while the platinum price was up by 0.8%. Profit-taking activity persists in palladium, which is down to $1,441.30 per oz, a contrast to yesterday’s $1,534.

Shanghai Futures Exchange base metals prices put in a mixed performance today with May copper, aluminium and zinc contracts up 0.1%, 0.4% and 1.2% respectively while the rest of the complex were weaker: May contracts for lead, tin and nickel were down by 0.3%, 0.7% and 0.9% respectively. The LME/Shanghai copper arbitrage ratio is unchanged at 7.43.

The spot copper price in Changjiang secured a mild gain of 0.1% and was trading at 49,350-49,530 yuan ($7,343-7,370) per tonne.

The SHFE June gold and silver contracts remain under selling pressure on Thursday with the complex down 0.6% on average. The bearish vibe appears in other metals too, with the May Iron ore contract traded on Dalian Commodity Exchange (DCE) down 1%, most recently trading at 607 yuan per tonne, while the SHFE May rebar contract declined by 0.4% and was recently trading at 3,693 yuan per tonne.

Brent crude oil prices dipped this morning to 67.46, down by 0.41%. German 10-year bond yield has edged lower too, trading at a negative of 0.0900 and showing no sign of relief yet. The US 10-year treasuries bond yield remained under downside pressure as well at 2.3598, down from yesterday’s level of 2.3969.

Overnight performance in the US and European equity indices was relatively poor and has set a bearish backdrop for the Asian equity market. Tokyo Topix index led the decline, down (-1.66%), followed by Nikkei (-1.61%) and China CSI300 (-0.40%). Only Hang Seng managed to eke out a mild gain of 0.03%.

US equity indices ran into selling at the close on Wednesday, with the Dow (-0.13%), SPX500 (-0.46%) and Nasdaq (-0.63%) all falling. Early indications of European equity indices performance for Thursday are rather positive, with the German Dax up 0.1%, French CAC rising by 0.3% and UK FTSE up by 0.4% at the time of writing. But unless bond yields can turn around, we envisage the positive start in European trading could revert lower later in the day.

In foreign exchange, the robust dollar index was last trading at 96.95 and this has kept the Euro down (-0.09%) at 1.1241. However, the Australian dollar defied expectation and edged higher to 0.7094, up 0.16%, and the Japanese yen has strengthened to 110.06, a contrast to yesterday’s 110.61 after the Japanese 10-year yield tumbled to its lowest since August 2016. Continued Brexit uncertainty has put the British sterling under selling pressure at 1.3165, lower than the 1.3199 level seen yesterday.

A busy day on several key economic data points, with M3 money supply, private loans, Italian 10-year bond auction coming up in the first half of the day. This is followed by a barrage of US data, from final GDP, unemployment claims and pending home sales. Several US Federal Reserve members are lined up to speak too, including Randal Quarles, Richard Clarida, Michelle Bowman and James Bullard.

The LME three-month base metals prices have been under persistent selling pressure in early Asian trading sessions since the start of the trading week. That said, dip-buying interest remains strong, with upside pressure visible during the late European trading sessions. This often indicates market sentiment and metals fundamentals have kept prices near current levels although the upside remains capped due to the barrage of negative macro headlines. Still, the base metals prices have performed considerably higher than the January 2019 lows and look to close out the first quarter on a strong note, which should provide a supportive narrative for further gains in the second quarter of the year.

Tumbling global bond yields are sending a strong message that risk sentiment is starting to deteriorate and there is a real risk of a global recession. The decline in US, German and Japanese 10-year bond yields has intensified as risk-averse investors switched from risky assets for the safety of government bonds instead. In times of global uncertainty, the risk-off narrative should benefit precious metals like gold and silver which are often the go-to haven assets.

Meanwhile, platinum is holding up well at $858 per oz while the palladium price remains under selling pressure after it came off from its historic high of $1,617.50 per oz. Palladium’s premium over platinum has contracted from $765 per oz to $582 per oz at the time of writing.

What to read next
US President Joe Biden will increase tariffs on Chinese imports including steel and aluminium, electric vehicles, semiconductors and advanced batteries, to counteract China’s “unfair” trading practices, he announced on Tuesday May 14
Anglo American's rejection of takeover bids by BHP has put copper firmly under the spotlight, but what challenges lie ahead for the red metal as the corporate tussle continues?
Copper fabricators in China and the wider Southeast Asian region continue to feel the pain of high copper prices on futures exchanges and a lack of new orderbooks, with some having already asked for a postponing of shipments of long-term copper cathodes, sources told Fastmarkets in the week to Wednesday May 15
Recent weeks have seen a significant number of miners agreeing sales of copper concentrate to traders for one to four years of supply, Fastmarkets has learned
The copper market is facing a historical moment with Chinese smelters now paying premiums for raw material copper concentrate while selling their finished product at a discount, but participants point to easing concentrate demand in the second quarter as supportive for the market
The new tariffs on aluminium imports imposed by Mexico are affecting the light metal's supply chain, trade flows and premiums, sources told Fastmarkets during the week to Friday May 3.