MORNING VIEW: LME base metals prices mixed after US-China trade talks make progress but no deal reached

The metals market remains cautious because there still seems a long way to go before a United States-China trade deal can be reached.

Weak Chinese trade data highlights how the global economy is suffering – China’s US dollar-denominated exports fell by 3.2% in September year on year, while imports dropped 8.5% in the same comparison.

  • Asian equities are firmer across the board because at least some progress was made on trade talks
  • Haven assets are weaker with US ten-year treasury yields strong and gold prices weaker
  • China’s auto sales fell 5.2% year on year in September – the 15th consecutive month of declines

Base metals

Three-month base metals prices on the London Metal Exchange were mixed this morning, Monday October 14. The main movers were nickel (-0.6%) at $17,420 per tonne and lead (-0.4%) at $2,167.50 per tonne, while the rest were little changed, with copper up by 0.1% at $5,808.50 per tonne.

There are bullish and bearish factors affecting copper, with MMG and Citic Metal declaring force majeure on copper concentrate supply contracts from the Las Bambas mine in Peru, while last week saw a 16,401-tonne increase in Shanghai Futures Exchange copper stocks.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were also mixed this morning. November aluminium dropped by 0.6%, while January tin led on the upside with a 1% gain. December copper was up by 0.3% at 47,040 yuan ($6,635) per tonne.

The spot copper price in Changjiang was up by 0.1% at 46,990-47,120 yuan per tonne and the LME/Shanghai copper arbitrage ratio was 8.1, compared with 8.15 at a similar time on Friday.

Precious metals
Spot gold prices were weaker at the end of last week, but are now consolidating and were recently quoted at $1,487.86 per oz – the low on Friday was $1,474.10.

Silver prices are consolidating, as are platinum prices, while palladium prices are holding up near record highs. Whether continued weakness in automotive sales rubs off on palladium remains to be seen.

Wider markets
Spot Brent crude oil prices were weaker this morning, with prices down by 1.4% from Friday’s close at $59.80 per barrel.

The yield on benchmark US 10-year treasuries firmed too as some risk-on has returned – it was recently quoted at 1.7298%, compared with 1.6570% at a similar time on Friday. The German 10-year bund yield is little changed, it was recently quoted at -0.483%, compared with -0.5790% at a similar time on Friday.

Asian equities were stronger on Monday: the Nikkei (closed), the Hang Seng (+0.85%), the Kospi (+1.11%), the ASX 200 (+0.54%) and the CSI 300 (+1.05%).

This follows a stronger performance in Western markets on Friday, where in the US, the Dow Jones Industrial Average closed up by 1.21% at 26,816.59; in Europe, the Euro Stoxx50 closed up by 2.2% at 3,569.92.

The dollar index was weaker at 98.50, it has breached the up-trend line on the charts, so we wait to see if we start to see a weaker dollar.

The other major currencies we follow, with the exception of the yen (108.24), are consolidating after seeing recent strength: the euro (1.1017), the Australian dollar (0.6772) and sterling (1.2573). The yen seems to be losing haven buying because risk-on has picked up.

Key data
In addition to the Chinese import/export data that was out earlier, there is data on German wholesale prices and European Union industrial production. UK Monetary Policy Committee member Sir Jon Cunliffe is also speaking.

Today’s key themes and views

The base metals are for the most part trading their own situations and are therefore looking quite mixed. Lead remains the metal that is trending higher in a steady fashion. Copper and zinc have seen higher prices recently due to supply disruptions, while aluminium remains weak. Tin is getting some lift off low ground and nickel is consolidating following the adjustment it had to make after Indonesia brought forward the ore export ban to January 2020.

With economic data pointing to a slowing global economy the base metals face headwinds on the demand side of the equation, but where supply is tight there does seem to be room for price gains, which we are seeing in lead.

There is still a lot of political uncertainty around that could further affect markets, so while gold prices may have pulled back from the highs, we expect dips will remain well supported.

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