MORNING VIEW: Base metals prices mainly weaker, despite firmer equities

Base metals prices on both the London Metal Exchange and Shanghai Futures Exchange were mainly weaker this morning, Wednesday February 3, with zinc prices bucking the trend.

Silver’s rally turn into a spike on Tuesday and stronger pre-market major western equity index futures this morning suggest equity markets are turning more risk-on again.

  • While three-month tin prices on the LME were off the highs, cash prices have shot higher recently on the back of a $1,500-per-tonne backwardation in the cash/three-month spread
  • The US Dollar Index has pushed higher through resistance, which may act as a headwind for commodities

Base metals
Three-month zinc prices climbed by 0.4% to $2,578.50 per tonne, this morning while nickel led on the downside with a 0.8% fall to $17,595 per tonne and the rest were all down by 0.2%, with copper at $7,737 per tonne.

The most-traded base metals contracts on the SHFE were for the most part showing relative weakness to the LME metals. As was the case on the LME, the SHFE March zinc contract was bucking the trend with a 0.8% rise, while the rest were down by an average of 1.4%. March copper was off by 1.1% at 57,000 yuan ($8,827) per tonne.

Precious metals
Spot silver prices dropped back to $26.30 per oz on Tuesday and were last at $26.85 per oz, this after a high of around $30 per oz on Monday. Spot gold was up 0.2% this morning at $1,839.31 per oz, with platinum ($1,097.50 per oz) up by 0.7% and palladium ($2,254.50 per oz) up by 0.4%.

Wider markets
The yield on US 10-year treasuries has extended higher; it was recently quoted at 1.11% this morning, up from 1.08% at a similar time on Tuesday, suggesting a slight pick-up in risk-on.

Asian-Pacific equities were mixed this morning: the Hang Seng (-0.32%), the CSI (-0.29%), the Kospi (+1.06%), the ASX 200 (+0.9%) and the Nikkei (+1%).

Currencies
The US Dollar Index is consolidating around previous recent highs and was recently at 91.05, but it did breach a series of three recent peaks between 90.97 and 91.06 on Tuesday, when it ran up to 91.28. This suggests the dollar could see its countertrend move higher for a while.

The other major currencies were for the most part either weaker, or consolidating, in low ground: sterling (1.3661), the euro (1.2043), the Australian dollar (0.7614) and the yen (105.00).

Key data
Wednesday’s economic agenda is busy mainly with services purchasing managers’ index (PMI) data. Data already out shows China’s Caixin services PMI fell to 52 in January, from 56.3 in the prior month.

Later there is PMI data out across Europe and the United States. Other data scheduled to be released includes the French government’s budget, EU and Italian consumer price index, EU producer price index and US ADP non-farm employment change and crude oil inventories.

In addition, there is an Organization of Petroleum Exporting Countries (OPEC), Joint Ministerial Monitoring Committee (JMMC) meeting and US Federal Open Market Committee member Charles Evans is scheduled to speak.

Today’s key themes and views
While tin prices consolidate just below recent highs and at levels not seen since May 2014, the rest of the base metals on the LME seem to be drifting lower, with the stronger dollar no doubt not helping. If this is a countertrend move then so far it is a mild one, but maybe there is little appetite to reduce exposure to the metals, given all the governments’ efforts that are underway to boost economic growth. We wait to see whether trading in the run-up to and during the Lunar New Year holidays brings more volatility, or a period of quiet trading.

Palladium prices are drifting, gold prices are consolidating in a sideways trend and silver is adjusting to recent volatility. The precious metal holding up the most is platinum, for a change.




William Adams

william.adams@fastmarkets.com

Published

William Adams

February 03, 2021

08:36 GMT

London