METALS MORNING VIEW 06/12: Expect choppy trading ahead of option declaration

Base metals prices on the London Metal Exchange are for the most part weaker again in the morning of Wednesday December 6, although copper and tin prices have run into some buying, with gains of 0.3% and 0.1% respectively.

Three-month copper prices are at $6,553 per tonne. With option declaration today and with there being a sizeable volume of $6,500 copper puts, it may be that prices continue to be choppy until option declaration is out of the way. The other base metals are down by an average of 0.6%.

Precious metals are generally firmer this morning - prices are up an average of 0.2%, with spot gold prices at $1,268.50 per oz. Prices were down across the board on Tuesday with gold prices off by 0.8% and the rest down between 1.1% for palladium and 1.4% on platinum. The low gold price on Tuesday was $1,260.95 per oz, the previous low from October was $1,260.70 per oz.

On the Shanghai Futures Exchange today, all the base metals prices are lower by an average of 2.3% as they follow the weakness seen on the LME on Tuesday. Nickel prices are off the most with a 3.9% decline, followed by a 3.2% drop in zinc prices and a 3.1% fall in copper prices to 51,410 yuan ($7,771) per tonne. Aluminium is off by 2%, lead prices are down by 1.5% and tin prices are off by 0.3%.

Spot copper prices in Changjiang are down by 3.4% at 51,160-51,540 yuan per tonne and the LME vs Shanghai copper arbitrage ratio has firmed to 7.85, compared with 7.81 on Tuesday, suggesting LME prices have fallen slightly more than SHFE prices.

The weakness has spread to the steel market too with iron ore prices in China falling by 4% to 523 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices are off by 3.3%, with gold and silver prices down by 0.6% and 1.2% respectively.

In international markets, spot Brent crude oil prices are up by 0.3% at $62.81 per barrel. The yield on US 10-year treasuries are weaker at 2.34% and the German 10-year bund yield has fallen to 0.30%.

Equities in Asia this morning are under pressure with the Hang Seng down by 2.04%, the Nikkei is off by 1.97%, the Kospi is down by 1.42%, the CSI 300 is down by 0.6% and the ASX 200 is 0.21% lower. This follows weakness in western markets on Tuesday where in the United States the Dow Jones closed down by 0.45% at 24,180.64 and in Europe where the Euro Stoxx 50 closed down by 0.16% at 3,570.57.

The dollar index, at 93.32, is little changed as it consolidates around the 20 day moving average. The jury is still out as to whether the September to November strength in the dollar is a counter-trend move within this year’s downward trend, or whether it is the start of a longer-term uptrend. For now, the dollar remains vulnerable, but we are still on the side of expecting the dollar to rise given the likelihood of interest rate differentials. The euro at 1.1828 is slightly weaker, as are sterling at 1.3402 and the Australian dollar at 0.76578, while the yen is firmer at 112.14, suggesting the yen may be picking up some haven interest.

The yuan remains flat at 6.6140, while the other emerging currencies we follow are giving back some of their recent gains – which may be them showing some nervousness with the corrections going on in the metals and equities.

Today’s economic agenda shows German factory orders climbed 0.5%, after a 1.2% fall previously. Later there is data out on EU retail PMI, with US data including ADP non-farm employment change, revised non-farm productivity, revised unit labor costs, IBD/TIPP economic optimism and crude oil inventories.

The base metals are selling off. This suggests stale long liquidation has emerged after prices failed to extend the October rallies, and with the year-end approaching it is not surprising some profit-taking is being seen. Tin and lead, the two smallest markets in terms of liquidity/fund interest, are the ones holding up the best, so we do see this more as a technical/profit-taking correction rather than one that is warning of a meaningful economic slowdown. The market, however, seems concerned about slower growth in China and while that view is held then prices may well fall further, but we would view this as leading to a better buying opportunity.

The precious metals are also suffering from the broad sell-off in metals, but we note that gold prices have held above support and are getting some lift. With the yen also bucking the trend in the currencies, it may be there is some haven buying around as investors rotate out of those markets that are correcting, which could lead to some inflows into gold. That said, with the Federal Open Market Committee meeting a week away and with the market expecting an interest rate rise, the weakness we have been seeing in gold may well be the market anticipating the rate rise – this could be the opposite of a “buy the rumor, sell the fact” set-up.

Overnight Performance
GMT 07:43 +/- +/- % Lots
Cu 6,553 21.5 0.3% 5,856
Al 2,047 -9.0 -0.4% 1,696
Ni 10,870 -35.0 -0.3% 2,229
Zn 3,085 -28.5 -0.9% 3,041
Pb 2,475 -19.5 -0.8% 691
Sn 19,430 10.0 0.1% 69
  Average   -0.3%      13,582
Gold   1,268.50 2.45 0.2%  
Silver        16.12 0.00 0.0%  
Platinum      915.60 1.60 0.2%  
Palladium      989.20 4.20 0.4%  
  Average PM   0.2%  

SHFE Prices 07.43 GMT RMB Change % Change
Cu      51,410 -      1,650 -3.1%
AL       14,395 -         295 -2.0%
Zn      24,505 -         820 -3.2%
Pb      18,720 -         290 -1.5%
Ni      88,000 -      3,580 -3.9%
Sn    140,750 -         390 -0.3%
Average change (base metals) -2.3%
Rebar   3,916.00 -    135.00 -3.3%
Au      276.05 -        1.60 -0.6%
Ag   3,800.00 -      46.00 -1.2%
Iron Ore (DCE) May'18 523 -22 -4.0%

Economic Calendar
GMT Country Data Actual Expected Previous
7:00am Germany German Factory Orders m/m 0.5% -0.2% 1.2%
 9:10am EU  Retail PMI 51.1
1:15pm US  ADP Non-Farm Employment Change 189K 235K
1:30pm US  Revised Nonfarm Productivity q/q 3.3% 3.0%
1:30pm US  Revised Unit Labor Costs q/q 0.2% 0.5%
Tentative US  IBD/TIPP Economic Optimism 54.6 53.6
3:30pm US  Crude Oil Inventories   -3.2M -3.4M


December 06, 2017

09:27 GMT