MORNING VIEW: Metals prices under pressure as crisis unfolds

The rout in global markets continued in early trading today, Monday March 16, with Asian equity indices down significantly and the pre-market Dow Jones Industrial Average Index (DJIA) futures already down by its 5% limit.

Three-month base metals prices on the London Metal Exchange are down across the board by an average of 1.2%, in high volume of 11,892 lots, as at 6.43am London time.

  • Bank of Japan said it will double its purchasing of exchange traded funds to yen 12 trillion ($111 billion) a year.
  • US Federal Reserve cut its benchmark interest rates by 1% to between 0% and 0.25%.
  • China’s industrial production fell by 13.5% in February.

Base metals
Three-month base metals prices on the LME were down between 0.6% for lead ($1,742 per tonne) and 1.9% for copper ($5,350 per tonne), with lead setting fresh multi-year lows, while the rest are holding above Friday’s lows.

The most-traded base metals contracts on the Shanghai Futures Exchange were mixed this morning, with September nickel and May lead showing gains of 1.5% and 0.4% respectively, while the rest were down by an average of 0.5%. May copper was off by 0.6% at 43,060 yuan ($6,143) per tonne.

Precious metals
Spot gold prices were up by 0.5% at $1,537.04 per oz this morning compared with Friday’s close and were up by 2.1% from Friday’s low at $1,505.50 per oz. The gold/silver ratio has raced higher to 1:107.

Wider markets
The yield on benchmark US 10-year treasuries was recently quoted at 0.74%, this compares with 0.88% at a similar time on Friday.

Asian equities were weaker this morning: the ASX 200 (-9.70%), the Nikkei (-2.46%), the Hang Seng (-4.47%), China’s CSI 300 (-4.3%) and the Kospi (-3.19%).

Currencies

The dollar index is consolidating after last week’s strong rebound and was recently quoted at 98.06, this after 97.58 at a similar time on Friday and last Monday’s low of 94.63.

Out of the other major currencies we follow, most are consolidating after last week’s weakness: the Australian dollar (0.6144), sterling (1.2342), the yen (106.43) and the euro (1.1163).

Key data
As well as industrial production, China released data fixed asset investments, retail sales and its unemployment rate - see table below for details. The Bank of Japan held rates at -0.1%, but added more stimulus, while later finance ministers and central bankers from the Group of 7 (G7) are meeting and there is a German Bundesbank monthly report.

US data includes the Empire State Manufacturing Index and Treasury International Capital long-term purchases.

Today’s key themes and views
While the crisis unfolds, the metals markets are likely to remain under pressure, but with prices on average down by 15% from pre-crisis highs, the sell-off has been fairly contained - there has not yet been massive deleveraging as was seen during the financial crisis in 2008. Given inventories were fairly lean due to the US-China trade war, there may not be that much more destocking to be done. Overall, while more areas in Europe and the US are locked down, then it is likely to further negatively impact demand for metals and in that scenario prices are likely to remain under pressure, unless production cuts are announced.

Gold prices have been under pressure, once the liquidation has run its course we would expect haven demand to start to dominate again.




Published

March 16, 2020

08:37 GMT

London