MORNING VIEW: Base metals prices mixed, showing some divergence

Base metals prices on both the London Metal Exchange and the Shanghai Futures Exchange were mixed this morning, Friday July 2, and were looking quite divergent.

Base metals
LME three-month copper ($9,314 per tonne) and aluminium ($2,516 per tonne) were up by 0.5% and 0.3% respectively, while the rest were down by an average of 0.3%, led by a 0.7% fall in nickel ($17,970 per tonne).

In recent days, the metals have been quite polarized with lead setting fresh highs for the year at $2,344 per tonne, aluminium and tin have challenged recent highs, while copper’s attempts to rally seem half-hearted with prices staying heavy. The extreme heat in parts of North America may well be what has driven lead prices, especially following the extreme cold weather seen in late-February. The big swings in temperature will have damaged lead-acid batteries, boosting demand for replacement batteries.

The most-active SHFE base metals contracts were for the most part weaker, with August aluminium the metal bucking the trend with a 0.3% gain, while the rest were down by an average of 0.8%, with August copper off by 0.7% at 68,220 yuan ($10,545) per tonne. The weakness in Shanghai follows a general down day on the LME on Thursday.

Precious metals
Spot precious metals were firmer across the board, the main mover was platinum that was up by 0.9% at $1,094.50 per tonne, while the rest were up by an average of 0.2%, with gold up by 0.1% at $1,778.62 per oz.

Wider markets

The yield on United States 10-year treasuries remains below the 1.50% level, it was at 1.46% this morning, down from 1.53% at a similar time on Monday.

Asia-Pacific equities were mixed on Friday: the Nikkei (+0.23%), the ASX 200 (+0.44%), the Kospi (+0.04%), the Hang Seng (-1.62%) and the CSI 300 (-2.49%).

The US Dollar Index continues to climb. It was at 92.59 on Friday morning, up from 91.85 at a similar time on Monday.

Major currencies remained on a back foot this morning: the Australian dollar (0.74642), the euro (1.1840), Sterling (1.3762) and the Japanese yen (111.59).

Key data
Friday’s data will focus on the US monthly employment report, but before that there is key data on Spanish unemployment change, European Union producer price index and then later this afternoon US data on the trade balance and factory orders.

In addition, European Central Bank President Christine Lagarde is scheduled to speak and there is a meeting of the Organization of Petroleum Exporting Countries and Joint Ministerial Monitoring Committee.

Friday’s key themes and views
The base metals are looking quiet mixed, suggesting each metal is trading its own fundamentals, with aluminium, tin and lead holding up well and near recent highs. At the same time, nickel, zinc and copper are consolidating further away from this year’s highs, with copper looking vulnerable. Given the stronger dollar it is understandable that the metals are generally on a back foot.

Gold prices have been consolidating after the sharp sell-off in mid-June; prices broke lower on Tuesday, but recovered and are consolidating again – although they still look vulnerable. The stronger dollar and record setting US equity indices are headwinds for gold, but the weaker US treasury yields should be supportive.

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