MORNING VIEW: Metals weak in early trading but could benefit from pick-up seen in wider markets

Despite signs of the Covid-19 virus being brought more under control with daily death tolls in most major economies now in decline, the rebound in demand is slow and this seems to be weighing on metals prices this morning, Wednesday April 22.

But with broader markets starting to pick up, the metals may shake off their early weakness.

One of the problems is that while manufacturing and industry can ramp-up quite quickly when they are released from lockdowns, the end-use demand is not there for them to ramp-up to usual capacity.

  • The aberration in the oil futures market in the United States has flowed into the West Texas Intermediate (WTI) spot price that was recently quoted at $11 per barrel.
  • Brent crude remains above $20 per barrel, recently at $21.21, but the irregularities in oil futures seems to be spooking financial players in other commodity markets, notably Comex copper.

Base metals
Three-month base metals prices on the London Metal Exchange were down across the board by an average of 0.8% as at 6.04am London time on Wednesday, led once again by nickel that was down by 2.3% to $11,875 per tonne. The rest of the complex was off by between 0.2% for aluminium ($1,487 per tonne) and 0.8% for lead ($1,649.50 per tonne). Copper was down by 0.4% at $5,006.50 per tonne, this after a high on Monday of $5,248 per tonne.

The most-traded base metals contracts on the Shanghai Futures Exchange were also weaker across the board by an average of 1.6%, led by a 3.5% fall in June nickel prices. June tin and copper prices were down by 2.3% and 2.4% respectively, with June copper at 40,690 yuan ($5,752) per tonne. The rest of the complex was down by an average of 0.5%

Precious metals
Spot gold prices started to rebound on Monday, but that faltered on Tuesday, with a drop to $1,662.05 per oz. Prices were consolidating again this morning and were recently quoted at $1,684.35.

The more industrial precious metals also sold-off on Tuesday, with palladium leading the decline with a 10.9% drop, but they were firmer this morning with gains of 0.1% for silver ($14.79 per oz), 0.5% for platinum ($750.90 per oz) and 1.6% for palladium ($1,965.50 per oz).

Wider markets
The yield on benchmark US 10-year treasuries is weaker again this morning at 0.56%, compared with 0.6% at a similar time on Tuesday.

Asian-Pacific equities were mainly firmer this morning: the Hang Seng (+0.17%), the ASX 200 (+0.31%), the Kospi (+0.43%) and China’s CSI 300 (+0.59%), while the Nikkei (-1%) was lower. Pre-market western equity indices were also firmer, showing gains of around 0.5%.

The dollar index is edging higher again, it was recently quoted at 100.23, this after 100.12 at a similar time on Tuesday and after a low of 98.81 on April 14.

The other major currencies we follow are for the most part consolidating: the euro (1.0852), the yen (107.59) and the Australian dollar (0.6321), while sterling (1.2300) is weaker.

Key data
Wednesday’s economic agenda includes a host of price data out of the United Kingdom, including consumer and producer price indices, as well as consumer confidence from the European Union, Chinese leading indicators and US data on house prices and crude oil inventories.

Today’s key themes and views
While more economies start to come out of lockdown demand should recover, but with business and household finances stretched and people concerned about whether the return to work will bring about second waves of the virus, spending, and therefore demand, may well take time to recover.

Key will be whether governments kick-start recoveries with infrastructure spending.

While there is talk these are being planned, there does not yet seem to have been much of a fanfare about them being implemented. If there is more noise about projects then that may well feed through to metal prices, especially because production is also being affected by the pandemic.

The wobble in WTI seems to have led to another mini dash-for-cash amongst some institutional investors and that appears to have weighed on gold prices. Ironically, the more abnormal the markets behave the more likely it is that other investors will seek out havens. This, combined with the economic pain, all the uncertainty and ultra-loose monetary and fiscal policy, are expected to support demand for gold.