METALS MORNING VIEW 26/02: Metals prices dip while market consolidates, but copper and tin uptrends look strong

After recent strong performances by the base metals traded on the London Metal Exchange, most prices started to consolidate at the beginning of the week and are down an average of 0.3% this morning, Tuesday February 26.

Copper and tin prices have been the strongest on the upside in recent weeks, with warrant cancellations in copper tightening up liquidity on the LME copper contract, while further supply disruptions in China are boosting tin.

The three-month copper price was recently quoted at $6,469 per tonne, down by 0.3% from Monday’s close at $6,485.50 per tonne and down from Monday’s peak of $6,540 per tonne, which was the highest since July last year. The three-month tin price was recently quoted at $21,670 per tonne, which is down 0.6% from Monday’s close at $21,795, while yesterday’s peak was $21,800 per tonne – the highest price since February 2018.

Volume across the LME base metals complex has been average with 6,370 lots traded as at 6.56am London time on Tuesday, compared with 10,416 lots traded at similar time on Monday.

Spot precious metals prices were mixed this morning; gold was recently at $1,326.81 per oz, down by $0.54 per oz from Monday’s close of $1,327.35 per oz, silver was little changed at $15.87 per oz, platinum was up by 0.7% at $856.60 per oz from Monday’s close of $851 per oz, and palladium was down by 0.5% at $1,537.50 per oz compared with yesterday’s close of $1,545 per oz.

In China, base metals prices on the Shanghai Futures Exchange were down across the board with losses averaging 0.4%. May nickel and April zinc led the decline with losses of 0.7%, while April copper is off the least with a 0.1% decline to 50,240 yuan ($7,483) per tonne, compared with 50,300 yuan per tonne at Monday’s close.

The spot copper price in Changjiang was down by 0.3% at 49,610-49,830 yuan per tonne this morning, compared with 49,785-50,005 yuan per tonne on Monday, while the London/Shanghai copper arbitrage ratio was little changed at 7.77.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was down by 3.2% at 593.50 yuan per tonne, compared with 613 yuan per tonne at the close on Monday. On the SHFE, the May steel rebar contract was up by 0.1% at 3,728 yuan per tonne, compared with 3,725 yuan per tonne at Monday’s close.

In wider markets, the spot Brent crude oil price was unchanged from Monday’s close at $64.73 per barrel.

The yield on US 10-year treasuries was recently quoted at 2.6525%, compared to 2.6654% at a similar time on Monday. The yields on the US 2-year and 5-year treasuries remain inverted and were recently quoted at 2.4910% and 2.4585% respectively. The German 10-year bund yield was weaker at 0.0100%, compared with 0.1100%.

Asian equity markets were weaker across the board on Tuesday: Nikkei (-0.37%), Hang Seng (-0.73%), the ASX 200 (-0.94%), the CSI 300 (-1.2%) and the Kospi (-0.27%).

This follows a stronger performance in western markets on Monday; in the United States, the Dow Jones Industrial Average closed up 0.23% at 26,091.95, and in Europe, the Euro Stoxx 50 closed up by 0.29% at 3,280.01.

The dollar index is consolidating and was recently quoted at 96.39. The consolidation in the dollar has generally led to consolidation in the other major currencies we follow: the euro (1.1355), the yen (110.81) and the Australian dollar (0.7154), although sterling is firmer at 1.3157 as the UK may consider delaying Brexit.

The yuan continues to strengthen and was recently quoted at 6.6949, compared with 6.7111 at last Friday’s close. Most of the other emerging market currencies we follow are consolidating.

Of the economic data due on Tuesday, the market is likely to take note of the US’ building permits, house prices and Richmond manufacturing index because they all have a bearing on economic activity as well as being directly linked to demand for the metals.

Data already out on Tuesday includes German GfK consumer climate that was unchanged at 10.8, but this has halted the downward trend in the data series that had seen a steady decline to 10.4 in December 2018, from a peak of 11 in January 2018.

In addition, broader markets, US treasuries and the dollar are likely to take note of what US Federal Reserve chair Jerome Powell is testifying on the Semiannual Monetary Policy report before the Senate Banking Committee, in Washington DC.

The base metals are seeming split into two camps with copper and tin being driven higher by developments directly affecting them, while the rest seem to be following the broader markets more, although are no doubt keeping an eye on copper and the US-China trade talks. If a trade deal looks likely then industry may well feel more confident and in turn that is likely to encourage some restocking along the supply chain, which seems to have destocked over the past nine months on the back of the trade dispute.

Warrant cancellations in copper continue with Monday’s data showing 33,450 tonnes of copper still on warrant, with 99,000 tonnes of warrants now cancelled.

The stronger tone in gold and silver has paused because the outlook for the global economy may be about to improve if a trade deal is nearing. Palladium prices continue to react to its strong fundamentals and platinum prices are also looking stronger, albeit if from a low base.

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William Adams


William Adams

February 26, 2019

09:05 GMT