METALS MORNING VIEW 28/11: Top of range selling emerges across the metals

Base metals prices on the London Metal Exchange are down across the board by an average of 0.9% this morning, Tuesday November 28. Nickel leads the decline with a 1.7% drop to $11,390 per tonne, while zinc prices are off by 1.2% at $3,147 per tonne and copper prices are down by 0.9% at $6,864 per tonne.

Volume has been high with 12,234 lots traded as of 06.52am London time. High volume and broad-based weakness for the second morning running do not bode well for the day ahead.

This morning’s weaker tone follows a generally negative day on Monday, when nickel prices fell by 3.7%, copper, lead and zinc prices closed off by an average of 1.3%, tin prices were little changed and aluminium prices closed up by 0.1%.

In precious metals, spot gold prices are little changed at $1,294.27 per oz, silver prices are down by 0.2%, while platinum and palladium prices are up by 0.5% and 0.1% respectively, with the latter at $1,294.27 per oz. This after a strong performance across the board on Monday when the complex closed up with average gains of 0.5%.

On the Shanghai Futures Exchange today, the base metals are weaker across the board by an average of 1.9%. Once again, nickel (-4.1%) leads the complex lower followed by zinc (-2.3%), aluminium (-1.9%), copper (-1.7%), lead (-1.2%) and tin (-0.3%) - with copper prices at 53,330 yuan ($8,082) per tonne. Spot copper prices in Changjiang are down by 1.3% at 53,320-53,720 yuan per tonne, suggesting the futures prices have continued to weaken after spot prices were set. The LME/Shanghai copper arbitrage ratio has dipped to 7.77, compared with 7.79 on Monday.

In other metals in China, iron ore prices are down by 0.8% to 494.50 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices are up by 0.7%, gold prices are stronger by 0.6% and silver prices are up by 0.1%.

In international markets, spot Brent crude oil prices are little changed at $63.70 per barrel. The yield on US ten-year treasuries is weaker at 2.32%, as is the German ten-year bund yield at 0.34%.

Equities in Asia this morning are mixed - the main take away being that the CSI 300, which has been jittery in recent days, is up by 0.14% and the Kospi is up by 0.25%, while the Hang Seng is down by 0.5% and the rest are little changed: Nikkei (-0.04%) and ASX 200 (-0.08%). This follows a mixed performance in western markets on Monday, where in the United States the Dow closed up by 0.1% at 23,580.78 and in Europe, the Euro Stoxx 50 closed down by 0.48% at 3,564.02.

The dollar index set a low of 92.50 on Monday, but left an underlying tail on the charts and was recently quoted at 92.99. Our line in the sand for giving up our bullishness on the dollar was a break of 92.50, so for now we are hanging on to our bullish stance. The euro at 1.1890 is showing some weakness, selling has appeared in sterling (1.3318), as it has with the yen (111.21), while the Australian dollar (0.7609) is consolidating.

The yuan at 6.6014 is consolidating, while the other emerging currencies we follow are if anything slightly firmer, which suggests emerging markets are not overly concerned about the present market set-up and that may be due to a more dovish US Federal Reserve stance.

Today’s economic agenda is busy with data on German import prices, the results of the United Kingdom’s bank stress test, European Union M3 money supply, private loans and German GfK consumer climate. US data includes goods trade balance, wholesale inventories, house prices, consumer confidence and the Richmond manufacturing index. In addition, there are numerous central bankers speaking, including Bank of England governor Mark Carney, US Federal Open Market Committee members William Dudley, Jerome Powell and Patrick Harker as well as US Treasury Secretary Steven Mnuchin.

Last week’s firmer tone in copper and nickel prices halted on Monday with prices correcting and there is follow-through selling around this morning. Indeed, the weakness is across the base metals, so it does look as though range trading is dominating, much as we have expected. We wait to see how the markets handle another price pullback to gauge how robust underlying sentiment is. We remain bullish for the fundamentals, but think prices already reflect the fundamental strength.

Gold prices are holding up well, no doubt supported by the weaker dollar of late, but there does seem to be resistance ahead of $1,300 per oz. Silver and platinum prices appear to have found bases and look set to remain rangebound for now, albeit with a slight upside bias, while palladium prices remain robust, but there seems to be supply above $1,000 per oz. Overall, we would look for more range trading.

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

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