BASE & PRECIOUS METALS - European Morning View - Copper leads on the upside

By: William Adams

London 05/12/2012 - The weak start across the markets on Tuesday generally set the tone for the metals, with precious metals closing down an average of 1.6 percent and the base were down on average by 0.6 percent. The exception was copper that bucked the trend, it managed to set a new multi-week high at $8,068.50, up 0.3 percent on the day. At the day’s lows silver was the worse performer, it dropped 2.4 percent to $32.77.

This morning in Asia the markets have become more upbeat on hopes for a recovery in China as the new leaders have pledged to keep their focus on urbanisation and promoting domestic demand. This has led to a 3.5 percent rebound in China’s CSI 300 index and the Hang Seng, Nikkei and MSCI Asia Apex have followed suit with gains of 1.5 percent, 0.4 percent and 1.3 percent.

The base metals for the most part are treading water, with zinc up 0.5 percent at $2,031, copper and aluminium are up 0.3 percent at $8,060 and $2,096, nickel is off 0.2 percent and the others are unchanged. Volume has been above average with 7,680 lots traded as of 7am GMT.

Precious metals have reacted more positively than the base, they are up an average of 0.6 percent, with Silver, yesterday’s weakest metal, rising 0.9 percent to $33.13, while gold and palladium are up 0.6 percent at $1,705.60 and $680.1 and while platinum is up 0.4 percent at $1,584.50.

In Shanghai the metals reaction has been somewhat muted compared to equities, albeit mixed, with the base metals up an average of just 0.1 percent with copper up 0.7 percent to Rmb 57,690, lead is unchanged at Rmb 15,360, zinc is up 0.2 percent at Rmb 15,345, while aluminium is off 0.2 percent at Rmb 15,405. Copper’s forward curve is in a contango, suggesting good forward buying interest.

Spot copper in Changjiang is up 0.3 percent at Rmb 57,100-57,350, which also puts it in contango with the futures, while the LME/Shanghai arb window remains closed with the differential widening again.

Currencies – the dollar remains on a back footing, which seems to reflect the continuing wrangling between US policymakers over the budget talks, while the euro is back in high ground at 1.3108 and is not far off the September highs that were at 1.3172. Sterling is quiet, but firm at 1.6110, as is the yuan at 6.2246, the aussie is strong at 1.0475 and the yen is weaker again at 82.28.

The economic agenda is busy with services PMI data out across Europe and the US, EU retail sales, US nonfarm productivity, ADP nonfarm employment change, which signals the start of the series of employment data out over the rest of the week, factory orders and crude oil inventories – see table on right.

Yesterday’s weakness in bullion seems to have been triggered by further long liquidation, but the lower prices appear to be finding good buying interest, while the PGMs seem to be in consolidation mode. Given the potential for further stimulus, Japan seems a likely candidate, and with QE likely to remain on the table in Europe and the US, we feel the big picture remains supportive for bullion overall.

With the potential for stronger growth in the US and China, which is likely to feed through to emerging markets in time, we feel there is some room for optimism in the base metals, especially considering the amount of destocking that has been done over recent quarters. The strong rebounds in the base metals have paused in recent days, but with copper still edging higher it does look as though there may well be further room on the upside. We would expect, however,  the going to get more difficult as we approach September highs as we feel producers are likely to look to lock-in these higher price levels.


Metals Overnight Performance
GMT6:59 AM+/-+/- %Lots
Steel 34300.0%Total lots
 Average (BM ex-Steel)0.1%7680
 Average PM0.6% 


Economic Agenda
UKBRC Shop Price Index y/y1.5% 1.5%
 8:15amEU Spanish Services PMI  41.2
8:45amEU Italian Services PMI 4646
9:00amEU Final Services PMI 45.745.7
9:30amUKServices PMI 51.150.6
10:00amEURetail Sales m/m -0.1%-0.2%
TentativeEUSpanish 10-y Bond Auction  5.52|1.8
12:30pmUKAutumn Forecast Statement   
1:15pmUS ADP Non-Farm Employment Change129K158K
1:30pmUS Revised Nonfarm Productivity q/q2.7%1.9%
1:30pmUS Revised Unit Labor Costs q/q -0.9%-0.1%
3:00pmUS ISM Non-Manufacturing PMI 53.654.2
3:00pmUS Factory Orders m/m 0.0%4.8%
3:30pmUS Crude Oil Inventories -0.4M-0.3M