METALS MORNING VIEW 03/05: Metals prices consolidate after dollar rally pauses

May 3, 2018 - 11:00 AM GMT
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Base metals prices on the London Metal Exchange were for the most part little changed on the morning of Thursday May 3, with copper prices up just 0.1% at $6,825 per tonne. The exceptions were zinc prices, which were down by 1% at $3,080 per tonne, and lead prices that were up by 0.5% at $2,290 per tonne.

Volume on the LME has been average, with 6,196 lots traded as at 07.02 am London time.

This follows a diverse day of trading on Tuesday that saw a 3.4% gain in aluminium prices, 1.3% and 0.8% increases in nickel and copper prices respectively, while zinc, lead and tin prices were down by an average of 0.7%.

The precious metals were all in positive territory this morning with gains averaging 0.4%, with palladium prices up by 1% at $968 per oz, while gold prices were up by 0.2% at $1,308.52 per oz. This after a stronger performance on Wednesday, when the complex closed up by an average of 0.8%. So once again it does look like prices weakened ahead of the US Federal Open Market Committee (FOMC) meeting, but have since rebounded.

On the Shanghai Futures Exchange this morning, metals prices were for the most part little changed, the exceptions were aluminium, where prices are up by 0.7%, and zinc, where prices were off by 0.4%. Copper prices were off by 0.1% at 50,960 yuan ($8,006) per tonne.

Spot copper prices in Changjiang were little changed at 50,680-50,830 yuan per tonne and the LME/Shanghai copper arbitrage ratio has weakened to 7.44, from 7.49 on Wednesday morning.

In other metals in China, iron ore prices were up by 1.1% at 473.50 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices were up by 0.3%, while gold and silver prices were up by 0.2% and 0.5% respectively. Again we note that the basic raw material prices remain firm, which may suggest a pick-up in restocking now we are further into the seasonally strong second quarter.

In wider markets, spot Brent crude oil prices were firmer, up by 0.21% at $73.20 per barrel, the yield on US 10-year treasuries was a shade easier at 2.97%, and the German 10-year bund yield was firmer at 0.58%.

Equity markets in Asia were mixed with the Hang Seng (-1.04%), the Kospi (-0.73%) weaker, while the CSI 300 (+0.8) and the ASX 200 (+0.8) stronger. This follows a split performance in western markets on Wednesday, where in the United States the Dow Jones closed down by 0.72% at 23,924.98, and in Europe where the Euro Stoxx 50 closed up 0.50% at 3,553.79.

The dollar index at 92.48 – after a high of 92.84 on Wednesday – suggests the latest run up in the dollar may have run its course, at least for now. This has provided some support in the other currencies with the euro at 1.1989, the yen at 109.61, the Australian dollar 0.7522 and sterling at 1.3605. The yuan, however, remains on a back footing at 6.3620, while the other emerging currencies we follow are mixed with weakness showing in the rupiah, real and ringgit, while the weakness in the peso, rand and rupee has halted.

The economic agenda is busy today with data on Spanish unemployment, UK services purchasing managers’ index (PMI), EU consumer price index (CPI) and producer price index (PPI), with US data that includes Challenger job cuts, initial jobless claims, nonfarm productivity, unit labor costs, trade balance, factory orders, services PMI and natural gas storage.

The base metals have been looking weak, but some dip-buying has emerged today, with the likes of nickel, aluminium and copper seeing buying over the past few days. If the dollar’s rally has run its course for now then that may take some downward pressure off prices. Whether we see consumers restocking remains to be seen – given the subdued economic data, they may not feel in any hurry to do so. That said, the economic data may not be exciting, but it is still showing expansion, as seen by the JP Morgan global composite PMI that has edged up to 53.5 from 53.3.

Precious metals prices have been under pressure with gold, silver and platinum prices recently breaching support levels. With the dollar’s rise halting for now, prices have found some support, but the markets continue to look vulnerable. We expect the dollar to set the direction for now.