METALS MORNING VIEW 07/06: Metals prices remain under pressure

Base metals on the London Metal Exchange are mostly slightly firmer this morning, Wednesday June 7, with prices up an average of 0.2%, but volume remains light at 4,870 lots as at 06:53 BST.

Three-month zinc and lead prices lead with gains of 0.7% and 0.6%, respectively, nickel prices are up 0.3% and copper is up 0.2% at $5,631 per tonne, while aluminium and tin prices are off 0.2%. This comes after general day weakness on Tuesday where tin prices fell 2.4%, lead prices were down 1.7%, zinc prices were off 1.4% and copper prices fell 0.5%, while nickel prices rebounded 0.7% and aluminium was up 0.1%.

The precious metals complex is little changed this morning, with bullion prices off around 0.2%, with spot gold prices at $1,292.14 per oz, while the PGMs are up around 0.2% with palladium at $855.40 per oz. This comes after a bullish day’s performance on Tuesday when palladium closed up 1.4%, gold and silver prices were up 1.1% and platinum prices closed up 0.7%.

In Shanghai this morning, the base metals trading on the Shanghai Futures Exchange (SHFE) are split with lead prices down 0.8%, zinc prices are off 0.4% and nickel prices are up 0.5%, while the others are little changed with copper at 45,100 yuan ($6,634) per tonne.

Spot copper prices in Changjiang are down little changed at 45,050-45,170 and the LME/Shanghai copper arb ratio is at 8.01.

In other metals in China, September iron ore prices on the Dalian Commodity Exchange are off 0.1% at 431.5 yuan per tonne, while on the SHFE, steel rebar prices are up 0.6% and gold and silver prices are up 0.5% and 0.3%, respectively.

In international markets, spot Brent crude oil prices are down 0.1% at $49.90 per barrel and the yield on the US ten-year treasuries is weaker at 2.15%, showing haven demand remains firm ahead of tomorrow’s key events with the UK election, former FBI director James Comey’s testimony before the US Senate Intelligence Committee and the European Central Bank policy decision.

Equities ended Tuesday weaker with the Euro Stoxx 50 closing down 0.7% and the Dow down 0.2% at 21,136.23. In Asia this morning, China’s CSI 300 is up 1.2%, the Kospi is down 0.4% while the Nikkei, Hang Seng and ASX 200 were little changed.

The dollar is giving more direction, however, with the dollar index falling to 96.51 on Tuesday, it was recently quoted at 96.63 and the yen is stronger at 109.45, which again is a sign of haven demand. The euro is firm at 1.1265, sterling is at 1.2907 and the Australian dollar has rallied to 0.7535 on the back of slightly stronger than expected gross domestic product that climbed 0.3%.

The yuan at 6.7951 is strengthening again – stronger equities and currencies suggest a more confident market.

The economic agenda is fairly light, Japan’s leading indicators dipped but beat expectations, while German factory orders fell 2.1%, although it is an erratic data series. Later there is data out on UK house prices, Italian retail sales, US crude oil inventories and consumer credit – see table below for more details.

The weaker tone continues to hang over the base metals with zinc prices leading on the downside this morning, followed by tin, while the rest are holding around recent lows. Given options declaration this morning we would not be surprised to see some increased volatility – we wait to see whether recent weakness has been caused by the magnetism of out-the-money put options and whether prices will rebound after declaration. The weaker dollar has not provided much support and for now concerns about slower economic growth seem to be dominating sentiment. Given geopolitical/political tensions there is a risk of a broader market correction that could drag base metals prices lower in the short term, but overall we remain mildly bullish for the medium to longer term.

Gold prices challenged the April high at $1,295.50 per oz and extended this year’s high by $0.05 per oz to $1,295.55/oz – prices are now consolidating, but given tomorrow’s key events we expect prices to remain firm, although depending on the outcome of tomorrow’s events we would expect prices to become more volatile. Palladium prices remain exceptionally strong, while we would not stand in the way of the rally, we are wary of its foundations given we expect a slowdown in key auto industries.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

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