MORNING VIEW: Nickel price remains in the spotlight while other base metals consolidate

Against the background of heavy economic and geopolitical clouds, markets are getting some lift on Friday August 16, presumably since they have absorbed all the latest gloomy news on global economy, trade, the unrest in Hong Kong and debt default concerns in Argentina.

Gold, the yen and US and German government bonds, remain in high demand, which highlight the cautionary stance investors hold and it is hard to expect any uplift in sentiment until there are some positive developments of United States-China trade.

  • Asian equites are mainly in positive territory, although the Kospi was lower following reports North Korea had test-fired two missiles
  • Base metals are mainly firmer in quiet conditions
  • Gold prices remain in high ground at $1,517 per oz

Base metals
On the London Metal Exchange, three-month base metals prices were for the most part firmer this morning. The exception was lead that was down by 0.5% at $2,049.50 per tonne - the rest were up by an average of 0.4%, with copper up by 0.5% at $5,766 per tonne.

Volume has been low with just 2,382 lots traded by 6:53am London time, compared with an average, at a similar time across last week, of 5,700 lots.

In China, base metals prices on the Shanghai Futures Exchange were mainly firmer, the exceptions was the September tin contract that was down by 0.2% and the October aluminium contract that was down by 5 yuan per tonne, while the October contracts for copper, zinc and nickel and September lead were up by an average of 1%, led by a 2.6% rise in nickel and a 1% rise in lead. October copper was up by 0.2% at 46,500 yuan ($6,606) per tonne.

Spot copper prices in Changjiang were up by 0.2% at 46,350-46,490 yuan per tonne and the LME/Shanghai copper arbitrage ratio was recently at 8.07.

Precious metals
Spot gold prices were down slightly from Tuesday’s high at $1,535 per oz, they were recently quoted at $1,517 per oz, while silver was holding up well at $17.17 per oz, after Tuesday’s high at $17.50 per oz. Palladium is treading water at $1,445 per oz, while platinum is correcting lower and recently quoted at $835.80 per oz.

On the SHFE, the December gold is up by 0.3% and December silver is down by 0.1%.

Wider markets
The spot Brent crude oil price is firmer, up by 0.86%, at $58.84 per barrel, its recent range being $55.86 to $61.48.

The yield on benchmark US 10-year treasuries has fallen further, it was recently quoted at 1.5486% having been at 1.7230% at a similar time on Monday. The German 10-year bund yield is also pushing further into negative territory and was recently quoted at -0.7070%, compared with -0.5800% at a similar time on Monday.

In equities, Asian indices were mixed: Nikkei (0.06%), Hang Seng (1.02%), Kospi (-0.58%), the CSI 300 (0.62%) and the ASX200 (-0.04%).

This follows a mixed performance in Western markets on Thursday: in the US, the Dow Jones Industrial Average closed up by 0.39% at 25,579.39 and in Europe the Euro Stoxx50 closed down by 0.18% at 3,282.78.

The dollar index is firming and was recently quoted at 98.15 - the recent range being 97.21-98.94. The yen (106.13) has eased from recent strength at 105.05, the euro (1.1101) is weaker after its recent rebound stalled, sterling (1.2121) is getting some lift as there are inter-party attempts to avert a no-deal Brexit, and the Australian dollar (0.6785) is consolidating.

The yuan remains weaken and was recently at 7.043 and most emerging currencies we follow remain on a back footing.

Key data
On the economic agenda today there is data on the European Union trade balance, while US data includes building permits, housing starts and the University of Michigan’s consumer sentiment and inflation expectations data.

Today’s key themes and views
The base metals are diverging with nickel and lead in upward trends, aluminium oscillating sideways as it bounces along the bottom, while zinc and tin are in downward trends.

The strength of nickel seems to be on account of two factors - short-covering in China and buying the rumor that Indonesia may bring forward the reintroduction of a ban on the export of ores. The reason behind the rise in lead is the production halt at Port Pirie, which may well tighten refined supply ahead of the seasonally stronger time when battery manufacturers increase production ahead of the winter months in the northern hemisphere.

While supply issues can drive bull markets even when demand is weak, overall sentiment is likely to remain depressed until a new US-China trade deal is signed, which may be a long way off – although you never know when US President Donald Trump will change tack.

Given the stress from geopolitical issues, world trade and global economic growth, gold is likely to remain sought after, but we would expect profit-taking sell-offs along the way.

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