MORNING VIEW: Base metal prices sluggish on summer slowdown

Base metals prices on the London Metal Exchange were mixed this morning, Thursday August 5, and those on the Shanghai Futures Exchange were mainly weaker.

Generally, LME base metals seem to be boxed in between scale-up selling when prices are near the highs and dip-buying into pullbacks. This is perhaps not surprising given that we are in the middle of the summer lull.

Shanghai base metals are generally weaker than their LME counterparts. This, too, is not surprising given recent highs, but also given that China is releasing some metal from state reserves and has been trying to dampen speculation and hoarding.

  • Markets are being pulled and pushed between strong earnings and concerns that the spread of the Delta variant could again lead to stricter lockdowns.
  • US ADP non-farm payrolls disappointed on Wednesday with 330,000 new jobs in July, compared with an expected 695,000.

Base metals
LME three-month base metal prices were split 50:50 between gainers and losers this morning, with copper ($9,490.50 per tonne), aluminium ($2,570.50 per tonne) and zinc ($2,980 per tonne) up by 0.3%, 0.3% and 0.6% respectively. Other base metals were down between 0.2% and 0.5%.

A majority of the most active base metals contracts on the SHFE were weaker on Thursday morning and down by an average of 0.4%. The exception was October zinc, which was up by 0.3%. September copper was down by 0.4% at 69,680 yuan ($10,779) per tonne.

Precious metals
Spot precious metal prices were mixed this morning. Spot gold was down by 0.1% at $1,810.18 per oz, silver was unchanged at $25.39 per oz, platinum was off by 0.8% at $1,014 per oz and palladium was down by 0.25% at $2,652 per oz.

Wider markets
The yield on United States 10-year treasuries has edged higher but remains in low ground. It was recently at 1.19% compared with 1.18% at a similar time on Wednesday and down from 1.23% at a similar time on Monday. According to the Financial Times, weaker yields now mean some $16.5 trillion’s worth of world bonds now have a negative yield, up from $12 trillion in May, and closing in on last December’s $18 trillion record.

Asia-Pacific equities were mixed on Thursday: the Nikkei (+0.52%), the ASX 200 (+0.11%), the Kospi (-0.13%), the Hang Seng (-0.91%) and the CSI 300 (-0.66%).

The US Dollar Index started to rebound on Wednesday and was recently at 92.28, up from 92.01 at a similar time on Wednesday.

The major currencies were mixed, but consolidating overall this morning: sterling (1.3906), the Australian dollar (0.73924), the Japanese yen (109.66) and the euro (1.1838).

Key data
Economic data already out on Thursday showed German factory orders climbed by 4.1% in June, compared with a 3.2% fall in May. French industrial production climbed by 0.5% in June after a 0.4% drop in May.

Other key data out later includes the release of the United Kingdom construction purchasing managers index and US data on Challenger job cuts, initial jobless claims and trade balance.

The Bank of England will also issue an update on its monetary policy.

In addition, US Federal Open Market Committee member Christopher Waller is scheduled to speak.

Thursday’s key themes and views
Most of the base metals were consolidating on Thursday morning either within their upward trends, or while holding up in high ground. This suggests overall sentiment remains confident. There is insufficient bullishness to chase prices higher, however, which is likely due to the summer lull. When markets hang up they become more vulnerable. There are plenty of potential triggers that could lead to price weakness (a correction in equities, more lockdowns that impact industry, weaker vehicle production and further sales from China’s reserves, for example). There could also be more supply disruptions, and the underlying long-term themes of infrastructure spending and the accelerated push toward electrification remain influential.

Gold prices are stuck in a sideways range now. Risk sentiment seems neutral. Strong equities on the back of strong results may start to encourage some risk-taking. But the spread of the Delta variant is a cause for concern, and lower treasury yields suggest some investors are taking risk off the table. Gold seems well placed to pick up haven demand, especially because it is well below the record highs in August 2020.