METALS MORNING VIEW – Base metals struggle as it remains a buyers’ market

Date 8/19/2015 9:05:20 AM

Recap of yesterday - Metals closed down an average of 0.6 percent yesterday, tin bucked the trend with a 0.6 percent gain and nickel was up slightly, while the others were off between 0.6 percent for aluminium and 1.8 percent for lead – copper closed off 1.1 percent at $5,115. Precious metals for the most part edged higher yesterday with gold, silver and platinum up an average of 0.4 percent, while palladium dropped 0.5 percent. The gold price ended the day at $1,117.


This morning - The base metals are mixed but off an average of 0.3 percent led by a 1.4 percent drop in tin, nickel is off 0.7 percent, copper is down 0.2 percent at $5,106.50, while zinc is up 0.1 percent and aluminium and lead are up 0.3 percent. Volume remains light with 2,482 lots traded, well down from last week’s average at this time of day of 10,523 lots. The continuing drift in prices highlights that it is a buyers’ market, with buyers not in any hurry to buy, while sellers need to take what bids there are.


Precious metals are slightly firmer with the PGMs up 0.4 percent, gold up 0.1 percent at $1,118.50 and silver little changed at 15.29. The precious metals are doing well to hold up as the dollar is firmer.


In Shanghai, the base metals are for the most part weak with zinc off 0.8 percent, copper and tin are down 0.7 percent, with copper at Rmb 38,970, aluminium is off 0.5 percent and nickel is down 0.2 percent, while lead is bucking the trend with a 0.7 percent gain.


Spot copper in Changjiang is unchanged at Rmb 39,150-39,280, the backwardation with the October contracts is at an equivalent of around $50/tonne, while the LME/Shanghai copper arb ratio is at 7.67, so the arb window is open, not that it it giving much support to LME copper prices.


Equities managed to get some lift yesterday with the Euro Stoxx 50 up 0.2 percent and the Dow closed up 0.4 percent, while Asia is weaker this morning led by a 1.5 percent drop in the CSI 300, the Nikkei is off 0.1 percent, the Hang Seng is off 0.4 percent and the Kospi is down 0.3 percent.


Currencies – the dollar is climbing again with the dollar index at 96.95, the euro is drifting lower, last at 1.1058, as is sterling at 1.5580, while the aussie and yen are flat at 0.7366 and 124.47, the rouble is slightly firmer at 64.43 and the yuan is little changed at 6.4450. The emerging market currencies remain weak following China’s devaluation; this is an area to monitor to see if the fallout is escalating.


Data out overnight showed a mixed picture on housing in China. New home prices fell an average of 3.7 percent in July from a year earlier, but this was less of a decline than the 4.9 percent seen in June, or the peak of 6.1 percent seen in March and April.  But, new home prices climbed in 31 out of the 70 cities monitored, which was up from 27 previously, they dropped in 29 and were flat in 10. So perhaps there are some signs of a recovery underway.


Data out today is focused on UK price data, which may throw light on when the Bank of England might start to tighten monetary policy, while US data includes housing starts and building permits – see table below for more details.


The base metals remain on a back footing, the path of least resistance continues to the downside, the markets look oversold and are vulnerable to short-covering, but sentiment remains bearish and so far there has been no catalyst to prompt enough buying to trigger short-covering rallies. The real lack of bullishness comes from the weak outlook for Chinese demand, so it would take a change there to change sentiment.


For now bullish supply side developments continue to have little effect, whether it be supply disruptions in copper or nickel, or signs of a deficit developing in zinc, with ILZSG data now showing two months of supply deficit. We are not even sure whether a weaker dollar would have too much of an impact on the base metals. Today’s FOMC Meeting minutes are likely to keep the focus on September for a Fed rate rise, but these minutes where for a meeting held before the Chinese devaluation so the market is likely to take that into account when it deciphers the minutes.


The precious metals continue to hold up well, especially gold and platinum, while palladium and silver are drifting a bit more. For now, we feel the gold price is being underpinned by concerns that the Chinese devaluation may be the thin end of the wedge. 




Overnight Performance                

BST       06:03:05       +/-   +/- %     Lots

Cu  5106.5   -8.5 -0.2%     1013

Al    1570.5   4.5  0.3%      458

Ni    10560    -70  -0.7%     600

Zn   1815      1     0.1%      258

Pb   1725      4.5  0.3%      140

Sn   15300    -210       -1.4%     13

Steel     300 0     0.0%      Total

      Average (BM ex-Steel)      -0.3%     2482

Gold       1118.5    1.5  0.1%     

Silver     15.29     0     0.0%     

Platinum       998.9     3.9  0.4%     

Palladium     614.2     2.2  0.4%     

      Average PM       0.2%     



SHFE Prices 6:07 BST          Change % Change

Cu  38970    -270       -0.7%

AL 12015    -65  -0.5%

Zn   14790    -115       -0.8%

Pb   13370    90   0.7%

Ni    81800    -200       -0.2%

Sn   107160  -740       -0.7%

Average change (base metals)      236.5          -0.4%

Rebar    2056      -18  -0.9%

Au   232.9     0.8  0.3%

Ag   3459      -11  -0.3%





Economic Agenda

BST       Country Data      ACTUAL       Expected      Previous

9:30am  GBP      CPI y/y        0.0%      0.0%

9:30am  GBP      PPI Input m/m          -1.8%     -1.3%

9:30am  GBP      RPI y/y        1.0%      1.0%

9:30am  GBP      Core CPI y/y      0.8%      0.8%

9:30am  GBP      HPI y/y        5.9%      5.7%

9:30am  GBP      PPI Output m/m       -0.1%     0.0%

1:30pm  USD      Building Permits       1.23M    1.34M

1:30pm  USD      Housing Starts         1.19M    1.17M


Edited by SHMET