MORNING VIEW: Base metals prices find support from China’s better manufacturing data

China’s official manufacturing purchasing managers’ index (PMI) rebounded to 52 in March, after 35.7 in February, which means 52% of purchasing managers reported conditions were “better” in March than they were a month earlier.

This has provided some support to the base metals this morning, Tuesday March 31.

  • Asian-Pacific equity indices and pre-market western futures were mixed.
  • Japan’s preliminary industrial production and retail sales remained positive in February.

Base metals
Three-month base metals prices on the London Metal Exchange were mainly firmer this morning, the exception was tin that was down by 0.2% at $14,370 per tonne, while copper and lead outperformed with gains of 2% and 1.1% to $4,851 and $1,717 per tonne respectively. Aluminium, nickel and zinc were little changed – see table below for more details.

Volume on the LME was at a pre-crisis normal level with 5,403 lots traded as at 6.25am London time, this compares with an average last week of around 11,000 lots at a similar time of day.

The most-traded base metals contracts on the Shanghai Futures Exchange were up across the board by an average of 1%, led by May copper that was up 1.9% at 39,330 yuan ($5,561) per tonne, with June tin, May lead and May zinc up by 1.8%, 1.2% and 0.6% respectively. June nickel and May aluminium were little changed.

Precious metals
Spot gold prices continue to consolidate after last week’s 8.6% gain and were recently trading around $1,616.14 per oz, while silver was at $14.10 per oz. The gold/silver ratio has climbed again and was recently at 1:115.

Platinum and palladium prices were consolidating this morning, just below recent rebound highs.

Wider markets
The yield on benchmark United States 10-year treasuries has eased slightly and was recently quoted at 0.67%, compared with 0.68% at a similar time on Monday.

Asian-Pacific equities were mixed this morning: the Hang Seng (+0.83%), the Kospi (+1.96%), the CSI 300 (+0.3%), the Nikkei (-0.95%) and the ASX 200 (-2.02%).

The dollar index is rebounding this morning and was recently quoted at 99.36, this after falling from 103 to 98.20 last week.

The other major currencies we follow are weakening while the dollar rebounds: the euro (1.1014), the yen (108.31), the Australian dollar (0.6190) and sterling (1.2336).

Key data
Tuesday’s economic agenda is very busy; the key data has been that which has already come out of Asia – see table below – and will also include the United Kingdom’s gross domestic product, consumer price index data out in France, Italy and the European Union as well as German unemployment data and the Chicago PMI from the US.

Today’s key themes and views
China’s PMI data is encouraging, but there is a long way to go before the economy is running at full steam again, and there remains the risk that a second wave of infections could spread.

But a recovery in China will be a step in the right direction for demand and will help offset the fall in demand being seen in those countries in the early and middle stages of the crisis. In addition, production cuts will help reduce the risk of a mountain of inventory being built.

As such, we would look for the base metals to remain rangebound for a considerable time, while we see how long economies have to stay in lockdown. With prices at these low levels, there may well be bouts of bargain-hunting but we expect there will be a few false dawns before a lasting recovery gets underway.

While the crisis unfolds further in the world ex-China, we expect there will be more demand for haven assets, which should benefit gold.