MORNING VIEW: Base metals prices quiet, mixed while they wait for direction

With the exception of tin that was perched just below recent multi-year highs and aluminium that was little changed, base metals prices on the London Metal Exchange were weaker this morning, Tuesday June 8.

  • Markets quiet but mixed, waiting for fresh direction
  • US Dollar Index edging higher and US 10-year treasuries drifting

Base metals

LME three-month base metals prices were mixed; tin was up by 1% at $30,935 per tonne, hovering just below multi-year highs at $31,135 per tonne which were seen on June 1, and aluminium was up by $2 per tonne at $2,422 per tonne, while the rest were all down by 0.4%, with copper quoted at $9,909 per tonne as of 6.18am London time.

Volumes traded on the LME have remained relatively light with 3,241 lots traded as of 6.18am London time, compared with 3,366 lots at a similar time on Monday and around an average of 6,817 at a similar time across last week.

The most-active Shanghai Futures Exchange base metals contracts were more up than down, with July lead up by 0.4%, July zinc and July tin both little changed, while the July contracts for copper, aluminium and nickel were down by an average of 0.7%, with copper down by 0.3% at 71,450 yuan ($11,166) per tonne.

Precious metals
Spot precious metals were mixed with gold ($1,897.19 per oz), silver ($27.81 per oz) and platinum ($1,171 per oz) down by between 0.1% and 0.2% this morning, while palladium ($2,841.50 per oz) was up by 0.1%.

Wider markets

The yield on US 10-year treasuries has slipped back to 1.56%, having been at 1.57% at a similar time on Monday.

Asia Pacific equities were mainly weaker on Tuesday: the Nikkei (-0.25%), the Kospi (-0.13%), the Hang Seng (-0.45%) and the CSI 300 (-1.19%), with the ASX 200 (+0.15%) bucking the trend.

The US Dollar Index is consolidating in the middle of its recent range – it was recently at 90.07. The recent range has been 89.53-90.63.

The other major currencies are consolidating within recent ranges this morning: sterling (1.4153), the Australian dollar (0.7745), the yen (109.45) and the euro (1.2179).

Key data
Key economic data already out showed Japan’s average cash earnings rose by 1.6% year on year in April, after a 0.6% rise in March, while its final reading for first quarter gross domestic product (GDP) showed a 1% decline and its economy watchers sentiment index dipped to 38.1 in May, after 39.1 in April. In addition, German industrial production fell by 1% month on month in April, after a 2.2% decline in March.

Later today there is key data on Italian retail sales, economic sentiment readings for Germany and the European Union from the Zentrum fur Europaische Wirtschaftsforschung (ZEW), EU final employment change, EU revised GDP and US data on the small business index from the National Federation of Independent Business and job openings.

In addition, United Kingdom Monetary Policy Committee member Andy Haldane is scheduled to speak.

Today’s key themes and views
The base metals, with the exception of tin, have lost upward momentum and are oscillating sideways to lower. We will now have to see whether this consolidation is just another pause in the uptrend or a sign that the rallies have run their course. The underlying fundamentals for the metals remain bullish – given the supply disruptions, shipping issues, economic recoveries and infrastructure spending, but physical buyers seem reluctant to chase prices higher. With some US central bankers starting to entertain talk about tapering, the markets may well get more nervous, which will increase the risk of corrections.

The background for gold is looking bullish due to the inflationary pressures and the potential for a broad-based correction. But, with prices already up significantly since the March low, any broad based correction could initially prompt profit-taking in gold too.

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