Will a drift in base metals prices turn into a correction?

Base metals prices on the LME are off an average of 0.3% this morning December 16, led by a 0.7% decline in zinc prices, three-month copper prices are off 0.3% at $5,709 per tonne, while the one metal bucking the trend in nickel where prices are up 0.3% at $11,290 per tonne. Volume on the LME has been light with 4,760 lots traded as of 06:47 GMT. Precious metals prices this morning are for the most part firmer with spot gold prices up 0.5% at $1,133.47 per oz, silver prices are up 0.9%, platinum prices are up 0.4%, while palladium prices are down 0.8% at $694.60 per oz.

This general weakness in the base metals follows from the weakness seen yesterday December 15, where prices closed down an average of 0.7%, led by 1.8 percent drops in nickel and lead prices, while copper closed down 0.4% at $5,725 per tonne. Precious metals continued their post US rate rise sell-off yesterday, with prices closing down an average of 3.1%, led by a 5.1% drop in silver prices to $15.96 per oz, with gold prices down 1.3% at $1,127.40 per oz – the recent low in gold prices being $1,122.90 per oz.

In Shanghai this morning, the base metals are for the most part firmer, the big exception being lead that is down 2.4% – the rest are up an average of 0.3%, led by a 0.8% rise in February copper prices to Rmb 46,740 per tonne, tin prices are up 0.5% and aluminium prices are up 0.3% while the rest are little changed. Spot copper in Changjiang is off 0.3%, so considerably weaker than the futures, the spread has narrowed to an equivalent of $8 per tonne backwardation, while the LME/Shanghai copper arb ratio is at 8.19.

In other metals in China, May iron ore futures are off 2.4% on the Dalian Commodity Exchange, in SHFE steel rebar prices are up 0.3%, gold prices dropped 0.9% and silver prices dropped 3.2%. In international markets, spot Brent crude price are little changed at $54.10 per barrel.

Equities remained upbeat yesterday with the Euro Stoxx 50 closing up 1.2% and the Dow finished up 0.3%, but Asia this morning is mixed with the Nikkei up 0.7%, the Hang Seng is off 0.1%, the CSI 300 is up 0.1%, the ASX 200 is off 0.1% and the Kospi is up 0.3%. The race seems to be on between the Nikkei (19,401) and the Dow (19,852) as to which will reach the 20,000 level first.

In FX, the dollar index reached at high of 103.56 yesterday, it closed leaving an overhead tail on the candlestick and this morning is quoted at 102.96. The euro set a fresh low at 1.0366 yesterday, it is now at 1.0440, sterling is weaker at 1.2429, as are the yen at 118.14 and the aussie at 0.7359. In emerging market currencies the yuan is little changed at 6.9340, the rupiah is weaker at 13,400, the rouble is up 0.8%, while the rest a little changed.

The economic agenda includes Italy’s and the EU’s trade balances, EU CPI, UK CBI industrial order expectations and the Bank of England’s quarterly report, with US data including building permits and housing starts – see table below for more details.

Copper prices edged lower earlier in the week but have not seen follow through selling, but neither have they seen much in the way of bargain hunting – prices are starting to look a bit toppy and the danger is that lack of upward momentum leads to stale long liquidation. The rest of the LME metals are in a similar situation, although some are consolidating in sideways patterns without prices drifting lower. The question is will we see profit-taking ahead of year end? If we do in these quieter trading conditions, then prices could get more volatile for a while.

Gold prices accelerated lower the post-FOMC rate rise, they continue to search for a support level that holds. Silver and platinum prices had held up better than gold prices recently, but that changed yesterday with prices dropping sharply – they found support at $15.88 and $889 per oz respectively. Palladium prices continued their correction – they are trading around the 50% Fibonacci retracement level of the October to December rally. We are still in the initial aftermath of the FOMC announcement and prices are adjusting to the more hawkish outlook that the Fed portrayed, but given how telegraphed the decision was and all the geopolitical uncertainty that 2017 will bring, we would be on the lookout for gold buying as investors take out some insurance against a possible correction in other over-stretched markets. 

 

Overnight Performance
GMT	06:47	+/-	+/- %	Lots
Cu	5709	-16	-0.3%	1139
Al	1733.5	-8	-0.5%	616
Ni	11290	30	0.3%	1525
Zn	2784.5	-19.5	-0.7%	1215
Pb	2308	-13	-0.6%	248
Sn	21170	-30	-0.1%	17
	Average		-0.3%	4,760
Gold	1133.47	6.07	0.5%
Silver	16.102	0.142	0.9%
Platinum	900.8	3.8	0.4%
Palladium	694.6	-5.4	-0.8%
	Average PM		0.3%

 

 

SHFE Prices 06:47 GMT	RMB	Change	% Change
Cu	46740	350	0.8%
AL	12965	35	0.3%
Zn	22730	0	0.0%
Pb	20095	-495	-2.4%
Ni	95940	10	0.0%
Sn	149940	750	0.5%
Average change (base metals)	0		-0.1%
Rebar	3377	9	0.3%
Au	265.45	-2.45	-0.9%
Ag	4118	-134	-3.2%

 

Economic Agenda
GMT	Country	Data	Actual	Expected	Previous
9:00am	Italy	Italian Trade Balance		4.21B	3.67B
10:00am	EU	Final CPI y/y		0.6%	0.6%
10:00am	EU	Final Core CPI y/y		0.8%	0.8%
10:00am	EU	Trade Balance		25.2B	24.9B
11:00am	UK	CBI Industrial Order Expectations		-5	-3
12:00pm	UK	BOE Quarterly Bulletin
1:30pm	US	Building Permits		1.24M	1.26M
1:30pm	US	Housing Starts		1.23M	1.32M

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