MORNING VIEW: Base metals prices start week on back foot in quiet conditions

Last week’s weaker tone in the metals has flowed through into morning trading on Monday May 4, with the three-month base metals on the London Metal Exchange down by an average of 0.6%, led by a 0.9% fall in copper to $5,061 per tonne.

May 4, 2020

By William Adams

With Japan and China closed trading volumes are thin.
Market participants likely to focus on European purchasing manager’s index (PMI) data and US factory orders.

Base metals
Three-month base metals prices on the LME were down across the board this morning, with most off by between 0.6% and 0.9%, although tin is only off by 0.2% at $15,000 per tonne. Volume has been light with 2,338 lots traded as at 6.52am London time.

Precious metals
Spot gold prices were little changed at $1,700.22 per oz this morning, while the more industrial precious metals were weaker, down by an average of 0.5%. For now, the metals seem stuck in sideways channels.

Wider markets
The yield on benchmark US 10-year treasuries is little changed, it was recently quoted at 0.61% this morning. It has been holding around this level for some time suggesting there is a degree of haven buying around and the price of gold holding around the $1,700-per-oz level suggests the same.

Asian-Pacific equities were mixed this morning with the Hang Seng down by 3.99%, the Kospi down by 2.68%, while the ASX 200 is up by 0.37%.

Currencies
The dollar index has rebounded, it was recently quoted at 99.32, this after a low of 98.54 on May 1.

The other major currencies we follow were consolidating this morning: the euro (1.0945), the yen (106.78), the Australian dollar (0.6394) and sterling (1.2460).

Key data
Monday’s economic data includes PMI data out across continental Europe, investor confidence data for the European Union from Sentix and US factory orders. The EU is also scheduled to release its economic forecast.

Today’s key themes and views
The metals are drifting lower because it seems that while lockdowns are being lifted not only will this lead to a recovery in demand, but it will also mean idled production will restart. Indeed, it is likely that production facilities will be able to ramp up fairly quickly, while end use demand for the metals may be slower to recover.

Gold prices pulled back last week, but prices are looking firmer again this morning. Our view remains unchanged: with so much uncertainty around, we expect any dips in gold will be well supported and if investors are concerned about the sustainability of equity rebounds then more money may find its way into gold.