MORNING VIEW: Base metals prices mainly higher, many at record levels, in strong trading volumes

Base metals prices on the London Metal Exchange and the Shanghai Futures Exchange were, for the most part, a lot stronger this morning, Monday May 10, but broader markets were mixed.

  • Friday’s United States employment report was much weaker than expected, suggesting the Federal Reserve will remain on its current tack
  • That report boosted equities, reducing the likelihood of a broader market correction anytime soon
  • Volumes on the LME have been extremely high
Base metals
LME three-month base metals prices were up by an average of 1% - with the exception of nickel, which was down 0.4% at $18,005 per tonne - and pushing their multi-month/year highs higher on Monday morning. Copper led the way with a 1.8% rise to $10,603 per tonne.

At 6.12am London time on Monday, a total of 15,662 lots had been traded on the LME, compared with 10,422 lots at a similar time on Friday, which itself was high.

The most-active base metals contracts on the SHFE were mainly stronger, with the exceptions of June tin and June nickel -  which were down by 1.5% and 0.4% respectively. The rest were up by an average of 2.7%, led by a 4.2% rise in June copper, which was recently at 77,210 yuan ($12,004) per tonne. Such strong gains in copper were due to the news that some copper smelters in China are being forced to cut output as treatment/refining charges (TC/RC) are too low.

Precious metals
Precious metals were up across the board this morning by an average of 0.7%, led by a 1.2% rise in silver ($27.75 per oz), with gold up by 0.3% at $1,837.58 per oz. Palladium ($2,939 per oz) and platinum ($1,262.60 per oz) were up by 0.5% and 0.8% respectively.

Wider markets
The yield on US 10-year treasuries was slightly firmer this morning at 1.59%, up from 1.57% at a similar time on Friday, but it had fallen to 1.47% on Friday.

Asia-Pacific equities were mixed on Monday: the ASX 200 (+1.16%), the Nikkei (+0.52%) and the Kospi (+1.67%) all gained, while the CSI 300 (-0.43%) and the Hang Seng (-0.28%) were weaker.

Currencies

The weak US employment report suggests the Fed will remain ultra-supportive and that has weakened the US Dollar Index which has extended its downward trend and was recently at 90.25, down from 90.92 at similar time on Friday. The dollar’s multi-year low was 89.21, seen on January 6, this year.

With the dollar heading lower, the other major currencies were stronger: the euro (1.2158), sterling (1.4055), the Australian dollar (0.7858) and the yen (108.85), although the yen is giving back some of its earlier gains, it had climbed to 108.34 on Friday.

Key data
Monday’s economic agenda is light with a reading of United Kingdom house prices and EU Sentix investor confidence.

In addition, US Federal Open Market Committee member Charles Evans is scheduled to speak.

Today’s key themes and views
The commodity reflation trade is in full momentum now and is being driven by the bigger picture - stimulus and infrastructure spending, combined with the transition to a carbonized economy - and by metal-specific developments, such as China looking to cut power generation to reduce pollution, which will affect some metal production, including copper, with smelters opting to reduce output due to low TC/RCs.

While we remain bullish for the metals for the long term, we are wary the situation seems to be overheating in the short term.

Given all the stimulus packages, the recovering economic growth and how the expected infrastructure spending could boost commodity prices, we are also wary about inflation. This, combined with stretched valuations in other markets, could all boost interest in gold. The fact silver is leading the run higher on Monday morning, also suggests investor appetite is returning to bullion.



William Adams

william.adams@fastmarkets.com

Published

William Adams

May 10, 2021

08:03 GMT

London

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