MORNING VIEW: Base metals start the year strongly and on high volume

The new year has started with optimism in the air and base metals prices on the London Metal Exchange and Shanghai Futures Exchange were up by an average of 1.8% and 1.4% respectively this morning, Monday January 14.

Most Asian-Pacific equity indices were also showing gains, while the dollar index remains in low ground.

  • Volume traded on the LME has been high with 12,012 lots traded as at 6.38am London time
  • Metals strong despite China’s Caixin manufacturing purchasing managers index (PMI) falling to 53 in December from 54.9 in November

Base metals
Three-month base metals prices on the LME were up across the board this morning, led by a 4.9% rise in nickel to $17,385 per tonne, followed by a 2% gain in copper to $7,912 per tonne. The rest of the metals were up by an average of 1%.

Most of the metals pulled back into year-end, so this morning’s stronger tone suggests longs were just getting back in again now the holiday period is over.

Most of the most-traded base metals contracts on the SHFE were stronger this morning, the exception was February aluminium that was down by 0.6%, while the rest of the metals were up by an average of 1.8% – led by a 3.6% rise in March nickel. February copper was up by 0.4% at 58,220 yuan ($8,914) per tonne.

Precious metals
Gold prices closed the year in rebound mode, but have jumped higher this morning and were recently up by 1.3% at $1,923.63 per oz – this after ending the year at $1,898.55 per oz. The weaker dollar and concerns over what tighter lockdowns may bring seem to be driving the upward acceleration.

Spot silver ($27.12 per oz) and platinum ($1,101 per oz) were both up by 3%, while palladium ($2,456.50 per oz) was up 0.1%.

Wider markets
The yield on US 10-year treasuries was recently quoted at 0.94%, compared with 0.96% at a similar time on December 24.

Asia Pacific equities were mainly firmer this morning: the CSI (+1.08%), the Kospi (+2.47%), the Hang Seng (+0.91%) and the ASX 200 (+0.02%), while the Nikkei (-0.68%) bucked the trend.

The US dollar index was drifting again and was recently quoted at 89.63, compared with 90.38 at the end of 2020.

The other major currencies were starting the year on a front foot: the euro (1.2266), the Australian dollar (0.7725), sterling (1.3691) and the yen (102.96).

Key data
Today has a busy economic agenda with manufacturing PMI data out in all regions, see table below. Japan’s final manufacturing PMI climbed to 50 in December, from 49 in November and after a flash December reading of 49.7.

There is also money supply and lending data out in the United Kingdom and construction spending data from the United States.

In addition, the is an Organization of Petroleum Exporting Countries (OPEC), Joint Ministerial Monitoring Committee (JMMC) meeting and Federal Open Market Committee members Raphael Bostic and Charles Evans are scheduled to speak.

Today’s key themes and views
Just as it was unsurprising that there was some book-squaring into the year-end, we should not be surprised that positions have been re-instated now that the holiday period is over and confidence in the base metals remains high with the market expecting stronger demand to feed through in the year ahead while infrastructure spending accelerates and as economies get stronger once vaccines are deployed.

But you have to question how much of the good news is already discounted in the price?

On the basis of ‘the trend is your friend’, tin seems to be continuing its uptrend, copper’s has paused but could easily accelerate higher again, while the others need to prove they still have upward momentum after their year-end pullbacks.

With gold prices well back above $1,900 per oz and putting in a V-shaped rebound, it does look like the August-November correction may now be over and another up-leg is underway. This is supported by the weaker dollar, but perhaps people are also concerned about the potential for inflation given so much government support has been made available to a much wider group than just the financial sector.

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