METALS MORNING VIEW 30/11: Base metals prices firm despite disappointing China data

Nov 30, 2018 - 8:51 AM GMT
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Three-month base metals prices on the London Metal Exchange were firm on the morning of Friday November 30 despite the release of weaker-than-expected economic data from China earlier in the day.

The three-month tin price led the gains with a 0.6% increase to $18,620 per tonne and was closely followed by zinc and nickel, which were both up by 0.4%. Copper and lead managed to eke out mild gains of 0.2%, with the former at $6,215 per tonne, while aluminium was unchanged. Still, overall sentiment in the LME base metals was fairly positive with prices up by an average of 0.3%.

With November drawing to an end and investors focusing on the weekend’s Group of Twenty (G20) summit in Argentina, trading volumes have been low this morning – only 3,012 lots had been traded across the LME three-month base metals as at 6.26am London time.

In the precious metals, demand for haven assets remains fairly muted despite the softer dollar of late. Gold and silver prices were unchanged at $1,224 and $14.30 per oz respectively, but platinum continues to underperform with a drop of 0.4% to $815.10 per oz.

Conversely, platinum’s sister-metal palladium recorded a fresh record high of $1,191 per oz earlier this morning – it was recently at $1,118.40 per oz.

In China, most of the January contract prices for base metals on the Shanghai Futures Exchange were up – the exceptions being aluminium and tin with falls of 0.7% and 0.1% respectively. Nickel and zinc recorded solid gains of 1.8% and 1.5% respectively, while copper and lead were more subdued with respective increases of 0.2% and 0.1%. On average, base metals prices on the SHFE were up by 0.5%.

Spot copper prices in Changjiang were a tad weaker, down by 0.1% to 49,760-49,800 yuan ($7,164-7,170) per tonne and the LME/Shanghai copper arbitrage ratio was at 7.96.

In other metals in China, the most-traded January steel rebar contract on the SHFE was off by 1.8%, while the SHFE June contracts for gold and silver were up a modest 0.4% and 0.3% respectively. The January iron ore contract on the Dalian Commodity Exchange (ZCE) edged up 5 yuan per tonne to 479 yuan per tonne.

In wider markets, spot Brent crude oil has attracted some bargain-buying near $60.00 per barrel this morning. In the bond market, US 10-year treasuries were slightly weaker, down by 0.07% at 3.0248 and similarly, the German 10-year bund yield was off by 0.36% at 0.3200.

The recent recovery in the US equity market has started to stall after it closed on a negative note on Thursday. Traders turned cautious amid fresh concerns that growth in the US economy has started to show signs of peaking. Sentiment was overshadowed by October’s weaker-than-expected pending home sales data. That said, Asian equity indexes were mostly higher this morning and largely ignored the overnight release of the negative Chinese economic data: Nikkei (0.4%), Topix (0.48%), Hang Seng (0.47%) and China CSI 300 (1.12%).

Following the sell-off on Wednesday, the dollar index has started to stabilize at 96.82. The other major currencies we follow were a tad weaker: the Australian dollar (0.7313), the euro (1.1384) and Sterling (1.2779).

It has been a busy start in terms of economic releases, with data already out showing China’s manufacturing and non-manufacturing purchasing managers’ index (PMI) data coming in well below market expectations at 50.0 and 53.4 respectively. In Japan, consumer confidence dipped to 42.9, from 43.0 previously and house starts were weaker than forecast at 0.3%. German data was mixed with the import price index for October up by 1%, beating an expected rise of 0.4%, while retail sales for the same month were down by 0.3% – against an expected 0.4% increase.

Later, we have the European Union’s headline and core flash consumer price index (CPI) and the Chicago PMI from the US. In addition, US Federal Open Market Committee member John Williams is due to speak.

The uncertainty surrounding this weekend’s G20 summit continues to dominate market focus. While base metals prices were largely up this morning, gains have been limited and should remain so until more direction emerges from G20 meetings. That said, any resolution from the summit would allow the base metals, which are generally in low ground, to stage an end-of-year rally, we feel. This is because a lot of the selling has run its course and a potential ceasefire or some type of framework to end the trade dispute between China and the US would likely attract pent-up demand from consumers looking to restock.

The precious metals, meanwhile, remain relatively quiet, though any tough rhetoric from either US President Donald Trump or his Chinese counterpart is likely to spark demand for haven assets. That said, platinum continues to struggle against the threat of US tariffs on automobile imports.

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