METALS MORNING VIEW: Strong Chinese PPI data boosts metals prices

The base metals have opened up on a strong footing this morning, Tuesday January 10, boosted by stronger than expected PPI data out of China – it was up 5.5%, compared with 3.3% in November, although CPI slipped to 2.1% from 2.3%.

This has boosted base metals prices that are up 0.9% on average this morning, led by lead and zinc that are up 1.9% and 1.7%, respectively, three-month copper prices are up 0.9% at $5,640 per tonne, nickel prices are up 0.5%, with aluminium up 0.2% and tin unchanged. Volume has been above average with 9,651 lots traded, as of 06:25 GMT.

Precious metals prices are firmer too this morning with average gains of 0.4%, with all the precious metals closely bunched with gains of between 0.3% for PGM prices, silver prices are up 0.5% and spot gold prices are up 0.4% at $1,187.25 per oz.

This morning’s gains are built on the back of average gains of 0.8% on the base metals on Monday January 9, where lead and zinc prices once again led the gains, while copper prices struggled – they closed off 0.1%. Precious metals prices were also stronger on Monday, prices closed with average gains of 0.7%.

In Shanghai this morning, the base metals prices are up an average of 2.6%, with zinc and lead prices up 5% and 4.4%, respectively, nickel prices are up 2.1%, while the rest are up between 1.3% and 1.6%, with the March copper price up 1.3% at 46,070 yuan per tonne. Spot copper prices in Changjiang are up 0.5% at 45,520-45,720 yuan per tonne. The forward curve remains in a contango. The LME/Shanghai copper arb ratio is at 8.17.

In other metals in China, May iron ore prices have leapt 3.9% on the Dalian Commodity Exchange, on the SHFE, steel rebar is up 6.8% while gold and silver prices are up around 0.8%. In international markets, Brent crude oil prices are up 0.2% at $54.91 per barrel.

Equities pulled back on Monday, with both the Euro Stoxx 50 and the Dow closing down around 0.4% – the 20,000 level on the Dow remains elusive – the high so far has been 19,999.63, it closed on Monday at 19,887.38. In Asia this morning, equities are mixed with the Nikkei off 0.8%, the Hang Seng is up 0.6%, the CSI 300 is up 0.1%, the ASX 200 is down 0.8%, which is up odd given the strength in metals, especially iron ore, while the Kospi is down 0.2%.

In FX, the dollar’s rebound early on Monday ran out of steam and the dollar index has pulled back to 101.82, after a high on Monday of 102.51. The weaker dollar has helped underpin other currencies with the euro at 1.0595, the yen at 115.72 and the Australian dollar at 0.7363, although the sterling remains weak at 1.2148. The yuan is above recent lows, it was recently quoted at 6.8765, and most emerging market currencies are firmer, especially the real, which is approaching high ground again.

The economic agenda has focused on Chinese inflation data – in addition, UK retail sales picked up, as did Japan’s consumer confidence – later there is data out on French industrial production, US NFIB small business index, US job openings and final wholesale inventories.

The base metals are looking more bullish this morning and the strong PPI data in China is no doubt driving that – the metals look well placed to extend higher, the main concern is if and when markets turn risk-off ahead of US president-elect Donald Trump’s inauguration. With the inauguration ten days away there may still be a window of opportunity to establish a bullish trend before the markets look to consolidate. A weaker dollar will also help underpin metals prices. Given economic data we are bullish for metals – but political developments could scupper that – at least for a while.

The global inflationary implications of higher Chinese PPI may well help underpin gold prices, especially with the geopolitical uncertainty surrounding the inauguration and with more talk of a hard Brexit. In addition, if the markets start to fear inflation then other markets, such as equity and bond markets, may struggle and that could also prompt demand for havens.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

William Adams

william.adams@fastmarkets.com

Published

William Adams

January 10, 2017

08:15 GMT

London