Metals weaker, volume strong, expect choppy trading ahead of options declaration

• US auto sales – 18.3 million annualised in October, 17.8 million in Sepetmber

The base metals closed on a firm footing yesterday with three-month prices up an average of 0.3 percent led by a 1.1 percent gain in copper prices to $4,914 per tonne and with aluminium, zinc and tin prices setting fresh highs for the year. Precious metals were also upbeat with spot prices closing up an average of 1.7 percent, led by a 2.7 percent rally in silver prices to $18.35, PGM prices closed up 1.5 percent and gold prices closed up 0.9 percent at $1,287.90 per oz.

This morning the base metals have picked up some selling with three-month prices down an average of 1.1 percent, ranged between a 0.6 percent drop in tin prices to $20,725 per tonne and 1.6 percent drop in zinc prices to $2,430.50 per tonne – copper prices are off 0.9 percent at $4,870 per tonne. Volume has been extremely high with 15,756 tonnes traded as of 06:54 GMT. The combination of high volume and price corrections ahead of option declarations suggests we may be in for a choppy morning of trading.

The precious metals are mixed, spot platinum prices are off 0.2 percent, the rest are up between 0.4 and 0.5 percent with gold prices last at $1,293.50 per oz.

In Shanghai, the January base metals are weaker by an average of 1.6 percent, as of 06:54 GMT, aluminium has been hit the hardest with a four percent drop to Rmb 13,200 per tonne, while copper prices are little changed with just a 10 yuan per tonne drop to Rmb 38,650. Zinc prices were off two percent, lead prices are off 1.8 percent, nickel prices are down 1.5 percent and tin prices were off 0.5 percent. Spot copper in Changjiang is up 0.7 percent at Rmb 38,920-39,120 per tonne, the backwardation has sprung out to an equivalent of $70 per tonne and the LME/Shanghai copper arbitrage ratio has narrowed to 1:793, suggesting the arb window is closed.

In other metals in China, January iron ore prices are down 1.8 percent on the Dalian Commodity Exchange, with seaborne prices quoted around $64.40 per tonne, January steel rebar on SHFE is up 0.4 percent, gold prices are up one percent and silver prices are up 2.3 percent. In international markets, spot Brent crude oil prices are weaker at $47.80 per barrel, weaker as some OPEC countries continue to strive to boost output and US inventories climbed more than expected.

Equities were under pressure yesterday with the Euro Stoxx 50 down 1.1 percent and the Dow closed off 0.6 percent – the market seems to be getting a bit more risk off ahead of the US election. Asia has followed suit with the Nikkei off 1.8 percent, the Hang Seng is down 1.4 percent, the CSI 300 is off 0.8 percent, the ASX 200 is down 1.2 percent and the Kospi is off 1.4 percent.

In FX, the dollar index has dropped to 97.66, extending its pullback from the recent high of 99.12 from October 25. The euro is stronger at 1.1068, sterling (1.2255) and the aussie (0.7630) are flat and the yen is firmer at 103.84. In emerging market economies, the yuan is pulling back from recent weakness, it was recently quoted at 6.7655, the other currencies we follow are either in their recent trading ranges or are slightly weaker in the cases of the rouble and the real.

The economic agenda is busy, last night US total vehicle sales beat expectations by a big margin, coming in at 18.3 million units annualised, having been expected at 17.5 million units. Later there is data out across Europe on manufacturing PMI, German unemployment change, UK construction PMI, US ADP non-farm employment change, US crude oil inventories and there is the FOMC rate decision and statement at 6pm GMT – see table below for more details.

After the strong run up in base metals prices of late, it is not surprising that some profit-taking and scale up selling have emerged, volume this morning has been high and it is option declaration so trading may well be quite choppy for a while. We remain quietly bullish, but do expect these higher prices levels to attract more pricing and producer hedging. We wait to see how well supported the dips are.

Gold prices are rallying out of the base area quite robustly and a pullback in the dollar combined with some risk-off ahead of the US election and this evening’s FOMC statement may well be giving prices a lift. We have also expected the October pullback in prices to attract a pick-up in physical buying, especially once a base seemed to be in place, and that may be unfolding now. Silver and platinum are following gold’s lead, while palladium is trying to, but it seems to be struggling to do so.

 

Overnight Performance
GMT	06:54	+/-	+/- %	Lots
Cu	4870	-44.5	-0.9%	3998
Al	1701	-24	-1.4%	5725
Ni	10335	-100	-1.0%	1989
Zn	2430.5	-38.5	-1.6%	3636
Pb	2045.5	-24.5	-1.2%	385
Sn	20725	-125	-0.6%	23
	Average		-1.1%	15,756
Gold	1293.51	5.61	0.4%
Silver	18.437	0.087	0.5%
Platinum	989.4	-1.6	-0.2%
Palladium	629.7	2.7	0.4%
	Average PM		0.3%

 

SHFE Prices 06:54 GMT	RMB	Change	% Change
Cu	38650	-10	0.0%
AL	13200	-555	-4.0%
Zn	19360	-400	-2.0%
Pb	16385	-295	-1.8%
Ni	82330	-1270	-1.5%
Sn	135580	-630	-0.5%
Average change (base metals)	0		-1.6%
Rebar	2617	10	0.4%
Au	282.4	2.75	1.0%
Ag	4181	94	2.3%

 

GMT	Country	Data	Actual	Expected	Previous
Tuesday	US	Total Vehicle Sales	18.3M	17.5M	17.8M
12:01am	UK	BRC Shop Price Index y/y	-1.7%		-1.8%
5:00am	Japan	Consumer Confidence	42.3	42.6	43
7:00am	UK	Nationwide HPI m/m	0.0%	0.2%	0.3%
8:15am	Spain	Spanish Manufacturing PMI		52.7	52.3
8:45am	Italy	Italian Manufacturing PMI		51.5	51
8:50am	France	French Final Manufacturing PMI		51.3	51.3
8:55am	Germany	German Unemployment Change		0K	1K
8:55am	Germany	German Final Manufacturing PMI		55.1	55.1
9:00am	EU	Final Manufacturing PMI		55.3	53.3
9:30am	UK	Construction PMI		51.8	52.3
12:15pm	US	ADP Non-Farm Employment Change		165K	154K
2:30pm	US	Crude Oil Inventories		1.6M	-0.6M
6:00pm	US	FOMC Statement
6:00pm	US	Federal Funds Rate		<0.50%	<0.50%

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