Metals prices remain upbeat, upward momentum gathers pace

Jan 11, 2017 - 7:30 AM GMT
by

Base metals prices are firmer by an average 0.3% this morning, January 11, with three-month copper prices leading with a 0.6% gain to $5,778 per tonne, aluminium prices are up 0.5%, zinc prices are up 0.4 percent, nickel prices are up 0.2%, while the rest are little changed. Volume has been slightly below average with 4,120 lots traded as of 06:22 GMT. Precious metals prices are also firmer this morning with gains ranged between 0.2% for spot gold prices, which are at $1,189.10 per oz and 0.8% for palladium prices at $765 per oz.

These gains built on yesterday January 10’s stronger performance when base metals prices closed up an average of 1.7%, where lead and copper led the advance with gains of 3.7% and 2.8% respectively. Precious metals prices were mixed yesterday with silver prices the main gainers, they were up 1.2% at $16.77 per oz, spot gold prices were up 0.3%, while the PGMs were little changed.

In Shanghai this morning, the base metals are for the most part up, with average price gains of 1.2%, led by a 2.6% rise in March copper prices to Rmb 46,960 per tonne, aluminium prices are up 1.9%, lead and zinc prices are up 1.3%, nickel prices are up 0.9%, while tin is bucking the trend with a 0.6% decline. Spot copper prices in Changjiang are also up 2.6% at Rmb 46,690-46,890 per tonne – the forward copper curve remains in a contango, while the LME/Shanghai copper arb ratio is at 8.14.

In other metals in China, May iron ore prices on the Dalian Commodity Exchange (DCE) are up 3.7%, on SHFE steel rebar is up 2.2%, silver prices are up 0.8% and gold prices are up 0.2%. In international markets, spot Brent crude prices are up 0.1% at $53.69 per barrel having weakened recently on the back of concerns of a US producer response to the higher prices.

Equities were under light pressure yesterday with the Euro Stoxx 50 and Dow closing down 0.1% and 0.2% on January 10, in Asia this morning the mood is more upbeat with the Nikkei up 0.3%, the Hang Seng is up 0.8%, the ASX 200 is up 0.2%, the Kospi is up 1.5%, while the CSI 300 is bucking the trend with a 0.4% fall.

In FX, the dollar index is consolidating around 102.80 – the recent range has been 103.82 to 101.30. The euro is also consolidating off recent lows, recently quoted at 1.0560, the yen is at 116.00, sterling is weak at 1.2160, while the aussie at 0.7380 is rising. The yuan is weaker at 6.9231 – after the PBoC intervention last week the yuan climbed to around the 6.7800, so it seems its path of least resistance is to the downside and that could raise friction with the new US administration, although at least the PBoC has been seen to be intervening. Emerging market currencies are for the most part firmer, which suggests little concern ahead of the US administration handover, it also reflects the stronger commodity markets, although the Mexican peso is weakening further, which does highlight stress about Donald Trump taking over the helm. Either before, or after the inauguration, we expect increased volatility in currencies, especially emerging market ones.

Economic data showed Japan’s leading indicators edged higher to 102.7%, it has been trending higher since May 2016 – later there is a host of UK industrial, construction and GDP data, plus Bank of England Governor Mark Carney is speaking at 2:15 pm GMT. US data includes crude oil inventories, but the focus is likely to be on president-elect Donald Trump’s press conference at 4pm GMT, FOMC member William Dudley is then speaking at 6:20 pm GMT – see table below for more details.

Base metals prices are looking stronger as their new year rallies extend – given better economic data, especially yesterday’s Chinese PPI data, it is not surprising that prices are rallying as traders position themselves as the new year gets underway. Fundamentally we like the metals’ outlooks, but we are wary that the political scene may now heat-up as president-elect Donald Trump takes the helm so we should be braced for some pick-up in volatility – we may get a hint at what is to come this afternoon when he holds a press conference.  For now we would run with the upward momentum, but be ready for some turbulence.

The run up in gold prices seems to be on the back of two issues – a pick-up in inflationary expectations and a pick-up in some safe-haven buying ahead of the changeover in the US administration.  Silver and platinum are following, while palladium has been seeing independent strength.

 

Overnight Performance
GMT 06:22 +/- +/- % Lots
Cu 5778 33 0.6% 1614
Al 1750 9.5 0.5% 669
Ni 10555 20 0.2% 789
Zn 2720 12 0.4% 780
Pb 2181 -1 0.0% 248
Sn 21150 0 0.0% 20
Average   0.3%         4,120
Gold 1189.1 2.95 0.2%
Silver 16.832 0.067 0.4%
Platinum 979.5 6.5 0.7%
Palladium 765 6 0.8%
Average PM   0.5%

 

SHFE Prices 06:22 GMT RMB Change % Change
Cu 46960 1180 2.6%
AL 12930 235 1.9%
Zn 22425 295 1.3%
Pb 18700 235 1.3%
Ni 87540 770 0.9%
Sn 153160 -910 -0.6%
Average change (base metals) 0   1.2%
Rebar 3162 67 2.2%
Iron ore 601.5 21.5 3.7%
Au 271.65 0.5 0.2%
Ag 4159 32 0.8%

 

Economic Agenda
GMT Country Data Actual Expected Previous
3:45am Japan
30-y Bond Auction
0.75|3.3 0.62|2.9
5:00am Japan
Leading Indicators
102.7% 102.6% 100.8%
 9:30am UK
Manufacturing Production m/m
0.5% -0.9%
 9:30am UK
Goods Trade Balance
-11.2B -9.7B
 9:30am UK
Construction Output m/m
0.3% -0.6%
 9:30am UK
Industrial Production m/m
0.9% -1.3%
2:15pm UK
BOE Gov Carney Speaks
3:00pm UK
NIESR GDP Estimate
0.4%
3:30pm US
Crude Oil Inventories
0.9M -7.1M
4:00pm US
President-Elect Trump Speaks
6:20pm US
FOMC Member Dudley Speaks