METALS MORNING VIEW 31/05: Metals weaker despite firm Chinese PMI data

Most of the base metals prices are weaker this morning, Wednesday May 31, the exception is three-month copper prices on the London Metal Exchange that are up 0.3% at $5,677 per tonne. The other LME metals are down an average of 0.6%, although that is skewed by a 2.4% decline in nickel prices to $8,890 per tonne.

Excluding copper and nickel, the rest are off between less than 0.1% and 0.2%. Volume has been high with 9,252 lots traded as of 06:30 BST. This comes after a generally weaker day on Tuesday when LME three-month prices closed down an average of 0.4%, led by 1.1% falls in aluminium and lead prices.

Gold prices are little changed this morning at $1,261.27 per oz, silver prices are off 0.4%, while the platinum group metals are up an average of 0.6%, with palladium prices back above $800 per oz. This comes after a mixed performance on Tuesday that saw palladium prices rebound 1.6%, platinum prices drop 2.4%, silver prices little changed and gold prices fall 0.4%.

Base metals prices in Shanghai had some catching up to do. On average prices were off 1.1%, although lead and zinc were little changed, nickel prices were off 3%, aluminium prices were down 1.5%, tin prices were down 1.1% and July copper prices were off 0.9% at 45,630 yuan ($6,716) per tonne. Spot copper prices in Changjiang were down 0.3% at 45,550-45,750 yuan per tonne and the LME/Shanghai copper arb ratio was at 8.03.

September iron ore prices on the Dalian Commodity Exchange remain weak with prices down 3.4% today at 436 yuan per tonne, while on the Shanghai Futures Exchange, steel rebar prices are down 0.9%, gold and silver prices are off 0.2%.

In international markets, spot Brent crude oil prices are down 0.6% at $51.87 per barrel. The yield on the US ten-year treasuries is weaker 2.22%.

Equities were weaker on Tuesday with the Euro Stoxx 50 closing down 0.5% and the Dow closed down 0.2% at 21,029.47. Asia, this morning, is mixed with the Nikkei off 0.3%, the Hang Seng and Kospi are little changed and the CSI 300 is up 0.1%, as is the ASX 200. Even Chinese PMI data which beat expectations has so far failed to boost market confidence.

The dollar index’s rebound has run out of steam, it was recently quoted at 97.49 after a peak of 97.78 on Tuesday. The trend in the dollar is still downward, which is odd given the market is so convinced of an interest rate rise in June. The euro is treading water at 1.1169, sterling is weaker at 1.2812, the yen is at 111.02 and the Australian dollar is firmer at 0.7451.

The yuan continues to strengthen, it was recently quoted at 6.7873, after 6.8446 on Friday May 26. Other emerging market currencies were for the most part flat.

Data out today showed a jump in Japan’s industrial production to 4% from a previous 1.9% fall and housing starts climbed 1.9%, after a 0.2% rise previously. Chinese non-manufacturing PMI climbed to 54.5 from 54, while manufacturing PMI was flat at 51.2, but above the expected 51.0. Later there is data out on German retail sales, employment reports from Germany, Italy and the EU, CPI reports from French, Italy and the EU and UK lending data and M4 money supply. US data includes Chicago PMI, pending home sales and the Beige book. In addition, US Federal Open Market Committee member Robert Kaplan is speaking. See table below for more details.

While recently aluminium and copper were the base metals looking the strongest as prices gradually worked higher, zinc and tin prices were consolidating and lead and nickel remained under pressure, they have all now turned lower. Indeed nickel prices have broken support and prices are back at levels last seen in June last year. It may be that the metals are absorbing end-of-month profit-taking, as given better than expected Chinese PMI and Japanese data, we would have expected a pick-up in sentiment. As such, we would let this weakness run its course, but expect buying to provide support.

Gold prices continue to hold up well and if the dollar heads lower again that should remain the case, especially as political uncertainty remains in place in the USA, EU/US relationships are strained, Italy could call an early election and the UK election, combined with the approaching start of Brexit negotiations, could cause some market jitters. Silver and platinum prices are weaker but palladium’s price rebound continues. We would not be surprised to see the more industrial precious metals struggle on the upside in line with weaker base metals prices, but we expect gold prices to remain robust.

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