MORNING VIEW: Metals stronger as supply fears dominate, especially for copper, zinc

Broad markets were managing to remain upbeat this morning, Thursday July 9, despite the rapid spread of the Covid-19 virus across some continents, while the base metals were rallying on the back of numerous supply disruptions, especially affecting copper and zinc.

Wednesday saw European equities pull back and those in the United States initially followed, but then US stocks ended Wednesday with gains and that seems to have set the tone for trading in Asia this morning. With second-quarter earnings season starting next week we should be braced for volatility.

  • Shanghai Futures Exchange copper prices hit 16-month highs today and London Metal Exchange copper prices have got within $12 per tonne of the January high…
  • …this after US cases of Covid-19 jumped by 62,000 on Wednesday.
  • Unions report that nearly 3,000 Codelco workers have Covid-19.
  • China passenger vehicle sales were down by 6.5% in June, compared with June 2019.

Base metals
Three-month base metals prices on the LME were mainly stronger this morning; tin was bucking the trend with a 0.3% drop to $17,050 per tonne, but the rest were up by an average of 0.6% - led by copper’s 1.3% rise to $6,316 per tonne.

The most-traded base metals contracts on the SHFE were quite polarized this morning, with September tin and October nickel down by 0.6% and 0.1% respectively, while the August contracts of the other metals were up by an average of 2.1% - led by a 3.9% gain in zinc. August copper was up by 1.9% at 50,620 yuan ($7,218) per tonne. One of the drivers of higher zinc prices is the fact that concentrate exports from the Red Dog mine have been delayed.

Precious metals
Spot gold prices were up by 0.2% this morning from Wednesday’s close and were recently quoted at $1,812.84 per oz - Wednesday’s high was $1,817.90. Prices are now just over $100 per oz below the record high seen in 2011.

Silver ($18.84 per oz) was up by 0.6% from Wednesday’s close and prices have now broken up through resistance at $18.40-18.44. Platinum ($855 per oz) is on course to challenge resistance around $862 per oz and palladium ($1,936 per oz) was holding within its sideways trading pattern this morning.

Wider markets
The yield on US 10-year treasuries was at 0.65% this morning, same as it was at a similar time on Wednesday morning, but down from 0.67% and 0.69% at similar times on Tuesday and Monday respectively.

Asian-Pacific equities were stronger this morning: the Hang Seng (+0.08%), the Nikkei (+0.56%), the Kospi (+0.55%), the Australia’s ASX 200 (+0.59%) and the CSI 300 (+1.16%).

The US dollar index has resumed its downward trend this morning - it was recently quoted at 96.32, compared with 96.88 at a similar time on Wednesday morning. We still wait to see if the consolidation seen since early June is just a bear-flag on the charts with the dollar index now starting to move lower again. The yuan was extending gains this morning and was recently quoted at 6.9886.

The other major currencies were firmer: sterling (1.2630), the euro (1.1357), the Australian dollar (0.6982) and the yen (107.23).

Key data
Data already out on Thursday showed some improvement. In Japan, core machinery orders rose by 1.7% month on month, better than the expected fall of 5.2%, and M2 money supply climbed by 7.2% year on year - it was expected to rise by 5.6%. In China, consumer prices were up by 2.5% (versus a 2.4% increase previously), and producer prices fell by 3% (versus a 3.7% decline previously).

Data out later includes releases on Germany’s trade balance, US initial jobless claims, final wholesale inventories and natural gas storage.

In addition, there is are Eurogroup meetings.

Today’s key themes and views
The base metals have considerable upward momentum and that may well continue to carry them higher in the short term, especially because demand is recovering while more supply disruptions unfold. But given the demand hit that Covid-19 has caused, we are not sure whether these price levels are sustainable for long.

Gold prices continue to trend higher and seem to be reflecting the current state of uncertainty well - dips continue to be well supported. We now wait to see whether the record high at $1,921 per oz from 2011, acts as a magnet.

There will be no Morning View report on Friday July 10.




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