Base metals look well placed to continue higher

Base metals consolidated yesterday and were down an average of just 0.1 percent, but performances were mixed with aluminium off 1.3 percent, copper and lead were down 0.5 percent, while zinc was unchanged, nickel was up 0.9 percent and tin was up 0.5 percent. Silver led most precious metals lower with a 2.9 percent drop, gold prices were down 1.3 percent at $1,314.15, platinum was off 0.6 percent, while palladium bucked the trend with a 2.1 percent gain to $667.

This morning, the base metals are firmer with tin, nickel, copper and aluminium up between 0.3 and 0.5 percent, with copper at $4,980, lead is up 0.1 percent, while zinc is little changed. Volume has been light with 3,980 lots traded as of 06:20 BST. Precious metals are little changed with gold prices up 0.2 percent at $1,316.36 and the rest up 0.1 percent.

In Shanghai, the base metals are up across the board by an average of 0.3 percent, led by 0.6 percent gains in aluminium and nickel, the rest are all up 0.2 percent, with copper at Rmb 38,550. Spot copper in Changjiang is off 0.5 percent, the spread has eased to a backwardation equivalent to $7.5 per tonne and the LME/Shanghai copper arb ratio is weaker at 7.74.

In other metals in China, iron ore prices are up 0.8 percent at Rmb 426.50 this morning, with steel rebar up 3.1 percent, while the precious metals are lower with silver down 3.6 percent and gold prices off 1.6 percent. Internationally priced Brent crude is last at $47.36.

Equities were firmer yesterday with the Euro Stoxx 50 up 1.2 percent and the Dow closed up 0.2 percent. Asia this morning is mainly bullish on the back of reports that Japan’s stimulus may be bigger than expected. The Nikkei is up 0.6 percent, the Hang Seng and CSI 300 are up 0.8 percent, the ASX 200 is up 0.4 percent, but the Kospi is off 0.2 percent. The moves in equities suggest risk is on and that bodes well for industrial metals.

In FX, the dollar is firm at 97.02, yesterday’s rebound high was 97.32, the euro is drifting, 1.1030, sterling is steady at 1.3228, the yen is weak at 107.12 and the aussie is consolidating at 0.7487. Perhaps more interesting is that the yuan appears to have turned higher, it is back at 6.6705, down from a recent low of 6.7164. Most other emerging market currencies are consolidating below high ground, but the ringgit is weakening.

Economic data out today showed Japan’s all industries activity declined one percent, data out later includes UK retail sales, public sector borrowing requirement, the ECB holds its rate setting press conference, US data includes the Philly Fed manufacturing index, initial jobless claims, house price index, existing home sales, leading indicators and natural gas storage – see table below.

The base metals have generally held up well, some have pushed higher and other have been consolidating, with aluminium and lead pulling back the most. The overall direction seems to be sideways-to-higher. Copper is again challenging resistance and being the only metal yet to push above its March high, it may still have some catching up to do. Nickel and zinc are the two leading on the upside.  We remain mildly bullish across the board – potential for stimulus and some signs of better Chinese data are bullish factors for demand.

Gold prices are under pressure as risk is on in other asset classes and there has been big potential for profit-taking in gold and silver, which seems to be unfolding now, albeit gradually and orderly. Platinum prices are consolidating, while palladium is looking very bullish. With wage negotiations underway in the South African platinum industry, we are not surprised the PGMs are holding up better than bullion prices.

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Source: Bullion Desk News