MORNING VIEW: Base metals prices mixed as markets face cross currents

Base metals prices on both the London Metal Exchange and the Shanghai Futures Exchange were mixed this morning, Tuesday March 9, with prices generally consolidating after recent weakness, while there are cross currents in the form of bond yields, stimulus and inflation expectations affecting sentiment.

  • Brent crude oil prices dip back below $70 per barrel after Monday’s move above $71 per barrel
  • Inflationary expectations running high on the back of widespread monetary and fiscal policy

Base metals
LME three-month base metals prices were mixed this morning with aluminium ($2,153.50 per oz) and nickel ($16,335 per tonne) prices down by 0.9% and 0.3% respectively, while the rest were in positive territory with gains averaging 0.2%, led by a 0.4% rise in tin ($24,260 per tonne). Copper was up by 0.1% at $9,015.50 per tonne.

The most-traded base metals contracts on the SHFE were also mixed this morning, with prices on average up by 0.1% across the board, with May copper, April tin and April lead up by an average of 0.9%, while the rest were down by an average of 0.7%, meaning a polarized market. May copper was recently quoted at 67,170 yuan ($10,298) per tonne.

Precious metals
Spot gold ($1,691.10 per oz) was up by 0.4%, silver ($25.34 per oz) was up by 0.7%, platinum ($1,153 per oz) was up by 1.1% and palladium ($2,328.50 per oz) was up by 0.2% – this after further falls in gold, silver and palladium on Monday, with platinum managing to buck the trend.

Wider markets
The yield on US 10-year treasuries has pulled back and was recently quoted at 1.56%.

Asian-Pacific equities were also mixed this morning: the Hang Seng (+0.94%), the ASX 200 (+0.47%), the Nikkei (+0.99%), the CSI 300 (-0.88%) and the Kospi (-0.67%).

The US Dollar Index continues its climb and was recently quoted at 92.32, this after a low at 89.68 on February 25, and a previous high at 91.58 on February 4.

The other major currencies were weak, but a few were showing some consolidation: the euro (1.1861), the Australian dollar (0.7660) and sterling (1.3846), although the yen (109.15) continues to weaken.

Key data

Data already out on Tuesday showed Japan’s preliminary machine tool orders rose by 36.7% year on year in February, after a 9.7% rise in January, and the British Retail Consortium’s retail sales monitor climbed by 9.5% year on year in February, after a 7.1% rise in January.

Later there is data on French final private payrolls, Germany’s trade balance, Italian industrial production, EU final employment change, EU revised gross domestic product and US small business index from the National Federation of Independent Business

Today’s key themes and views
The pullbacks have been quite varied across the base metals on the LME, ranging from 6% for aluminium and 21% for nickel, with the average fall being 12%. So far copper has been the most buoyant following last week’s 11% pullback, it is now off by 6% from the February high.

There are cross currents flowing through the market, the Dow Jones Industrial Index set a fresh intraday high on Monday, while China’s CSI 300 set a fresh low for the year earlier in the day and is some 16% below the high seen in February. The market is wary that all the extra stimulus will be inflationary, but for the metals, inflation should be supportive as indeed should the stimulus spending, so it just a case of whether a deeper sell-off in equities drags metals down too for a while.

As we have been saying of late, this correction should let us see how strong underlying demand really is by seeing how far prices pull back and how long they pullback for. We remain medium-term bullish on the back of another super-cycle, this time driven by the electrification theme.

Gold prices are finding some support this morning, but are generally trending lower because of the run-up in bond yields has increased the opportunity cost of holding gold. The strong dollar will be another factor weighing on gold, but a cheaper gold price will make for a cheaper safe-haven should broader markets correct further.

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