MORNING VIEW: Metals mixed, with dip buying evident on LME; SHFE weaker

Base metals prices were mostly slightly up on the LME but weaker on the SHFE this morning, Thursday September 30, but overall the markets seem to be consolidating while they await big-picture developments.

  • China’s power rationing weighs on the official manufacturing purchasing managers index (PMI)
  • The Thursday economic agenda is busy
  • US dollar rallying strongly
Base metals
After price weakness on Wednesday that saw prices down by an average of 0.9%, most of the London Metal Exchange base metals prices were firmer on Thursday morning on dip buying. The exception was zinc, which was down 0.1% at $3,044 per tonne, whereas the rest were up by an average of 0.5%, led by a 1.1% rise in nickel ($18,470 per tonne). Copper was up 0.1% at $9,172 per tonne.

But, at $9,172 per tonne, copper prices are in the lower half of the range ($8,740-$9,924 per tonne) that prices have held since July.

The most-active base metals contracts on the Shanghai Futures Exchange, meanwhile, were down across the board by an average of 0.7%, with the November contracts for aluminium (down 1.1%) and tin (down 1.2%) registering the biggest falls. These two metals have been the ones extending their uptrends in recent weeks, which suggests profit-taking is at work. November copper was down 0.7% at 68,180 yuan ($10,539) per tonne.

Precious metals
Spot gold was up by 0.3% at $1,732.65 per oz and spot silver up by 0.3% at $21.60 per oz this morning, while platinum ($962.30 per oz) and palladium ($1,882 per oz) were up by 1.3% and 1.2% respectively.

Wider markets
The yield on US 10-year treasuries has settled down around the 1.52% level, having been as high as 1.55% on Tuesday.

Asia-Pacific equities were mixed on Thursday morning: the Nikkei (-0.11%), the Hang Seng (-0.68%), the CSI 300 (+0.74%), the ASX 200 (+1.57%) and the Kospi (+0.37%).

The US Dollar Index accelerated higher on Wednesday and was recently at 94.33, this after 93.88 at a similar time on Wednesday. It is now its highest level since September 2020, with resistance now in the 94.30-94.75 area. Uncertainty in China and the potential damage that higher interest rates could inflict on overseas dollar debt holders seem to be attracting funds to the United States.

The other major currencies were weaker: sterling (1.3435), the Australian dollar (0.7205), the euro (1.1597) and the Japanese yen (111.84).

Key data
Data already out on Thursday showed Japan’s preliminary industrial production fell by 3.2% in August, after a 1.5% fall in July, retail sales also fell by 3.2% in August, after a 2.4% rise in July and housing starts climbed by 7.5% in August after a 9.9% rise in July.

China’s manufacturing PMI fell to 49.6 in September, from 50.1 in August; over the same period, the country's non-manufacturing PMI climbed to 53.2 from 47.5 and the Caixin manufacturing PMI climbed to 50, from 49.2.

Later on today, there is a barrage of data including the United Kingdom's gross domestic product (GDP); consumer price index data in Germany, France and Italy; the European Union employment rate; and key US data includes GDP, initial jobless claims and the Chicago PMI, see table below for details.

In addition, for the fourth day running, there are a lot of central banker speeches from the likes of US Federal Reserve chairman Jerome Powell and Federal Open Market Committee members John Williams, Raphael Bostic and Charles Evans.

Thursday’s key themes and views
The stronger dollar has no doubt been dampening metals prices in recent days along with questions about when the US Fed will start to taper. And increased uncertainty in China about the impact of power shortages, higher energy costs and questions about the fallout from the Evergrande situation have also had a big impact on prices.

Given all this, however, the metals are still generally holding up quite well, suggesting there is not a lot of appetite yet to reduce exposure. And we think that is because, with strained supply lines, manufacturers want to be holding stock for when orders do come in. Having stock provides a degree of certainty.

So, despite all the uncertainty, there is little fear around and the havens are not in demand - judging by the direction of gold, the yen and bond yields. While fear may be absent, rotation seems evident, with money moving into the US, judging by the US Dollar Index. Should fear pick-up, then investors may view gold as a relatively cheap haven.

William Adams


William Adams

September 30, 2021

09:07 GMT