MORNING VIEW: Base metals prices consolidate, market waiting to gauge fallout from coronavirus epidemic

While equity markets remain buoyant on optimism that the spread of the novel coronavirus (2019-nCoV) may be slowing, the base metals seemed more circumspect on Wednesday February 12 as they wait to see what the fallout from the virus will be in terms of how much disruption the manufacturing sector is suffering.

  • LME base metals prices were up by an average of 0.2%; SHFE base metals prices were mixed.
  • Asian equities are up across the board, as are pre-market Western equity indices.
  • The spot gold price is drifting and was recently quoted at $1,565 per oz.

Base metals
Three-month base metals prices on the London Metal Exchange were for the main part higher, the exception was aluminium that was down by 0.3% to $1,733 per tonne, while the rest were up by between 0.2% for tin ($16,555 per tonne) and 0.4% for both lead ($1,855 per tonne) and copper ($5,750.50 per tonne), with nickel ($13,160 per tonne) and zinc ($2,161 per tonne) both up by 0.3%.

Trading volumes was above average with 6,347 lots traded as at 5.50am London time, but this was lower than that seen at a similar time on Monday and Tuesday when volumes averaged 10,800 lots.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were mixed; March lead stands out with a 0.9% gain, while the June tin, April nickel and April aluminium contracts were all down by 0.2%, the April zinc contract was off by 0.1% and the April copper contract was up by 0.1% at 45,780 yuan ($6,565) per tonne.

The spot copper price in Changjiang was up by 15 yuan per tonne at 45,350-45,420 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 7.96, compared with 7.98 on Tuesday.

Precious metals
Precious metals were mixed this morning, with the spot gold price off by 0.1% at $1,565.10 per oz, spot silver down by 0.3% at $17.56 per oz, while platinum and palladium were up by 0.4% and 0.1% respectively.

Wider markets
The yield on benchmark United States 10-year treasuries has firmed and was recently quoted at 1.61%, compared with 1.57% at a similar time on Tuesday. The German 10-year bund yield was firmer too and was recently quoted at -0.39%, compared with -0.41% at a similar time on Tuesday.

Asian equities were stronger this morning, with the Nikkei up by 0.74%, the Kospi up by 0.69%, the ASX 200 up by 0.47%, the Hang Seng up by 0.98% and China’s CSI 300 up by 0.70%.

The dollar index (98.81) is holding up in high ground, but with its rally paused the other major currencies have either consolidated, as in the yen (109.87) and the euro (1.0908), or have edged higher, as in the case of sterling - recently quoted at 1.2953 - and the Australian dollar at 0.6724.

Key data
Economic data out on Wednesday includes: European Union industrial production, United Kingdom leading indicators and US crude oil inventories.

In addition, US Federal Reserve chairman Jerome Powell and US Federal Open Market Committee member Patrick Harker are speaking.

Today’s key themes and views
The base metals are now consolidating after the initial January 17 to February 3 sell-offs; lead and zinc prices did go on to set fresh lows on Monday, but they too are now consolidating. While equities may have the luxury of being able to look past the short-term disruptions the coronavirus outbreak causes, the metals will feel the short-term impact more as traders adjust their positions, hedges and stock levels to take into account supply and demand disruptions.

As such, we still expect choppy trading in the days and weeks ahead, until more is known about how big the demand shock will be, but then as the Chinese monetary stimulus feeds though to the economy, demand for the metals should benefit.

The price of gold is generally holding up well, it is down from earlier highs, but there is still enough uncertainty around to support its price, but if risk-on gathers pace then gold may start to look a bit rich.


February 12, 2020

08:12 GMT