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LME - 5 April 2014

The markets are watching China, but are not quite sure what to make of it.  This left the base metal markets’ response perplexed and mixed.

On the positive side, China’s prime minister Li Keqiang was promising that the government would take measures to support the economy and dampen volatility.  But on the downside, a small construction company missed a CNY18m (£1.75m) interest payment on a CNY180m bond.

Economic data from China was no more comforting. The official purchasing managers’ index (PMI) for manufacturing in March came in at 50.3, up from the February reading of 50.2, and above the markets’ expectation of 50.1.  The manufacturing PMI compiled for the bank HSBC, in contrast, fell to 48.0, falling below the 48.1 seen the previous month, and well below expectations of 48.5.  The divergence, with the official figure pointing to growth and the bank’s one to contraction, was probably due to the fact that the official data is biased towards large state-owned companies, while the private data tends towards smaller companies.

The markets are also concerned about the risk of deflation in the eurozone – with all the risks of arresting economic activity that it brings.  Inflation in the zone was running at 0.5% a year in March, which probably means that some member countries are already in trouble.  The 0.5% is well below the European Central Bank’s target of slightly under 2%, but some of the more hawkish members of the governing council are in no hurry to edge inflation higher.

Also the Tankan survey, a poll of Japanese business confidence carried out by the Bank of Japan, showed that the score for large manufacturers rose to 17 in the first quarter of this year from 16 in the final quarter of last year, falling below forecasts of a score of 19, while expectations for the future dipped sharply to 8 from 14 in the previous survey – and this was well below expectations of a decline to 13. One reason for this lack of optimism may be the rise in sales tax (from 5% to 8%) imposed from 1 April.

The markets will now focus on the release of US non-farm payrolls.  Analysts were expecting the US economy to have created 200,000 new jobs in March.

IN DETAIL:

On the London Metal Exchange, aluminium for delivery in three months rose to around $1,774 per tonne earlier this week from $1,732 a week earlier. Stocks of aluminium in warehouses approved by the exchange eased to 5,381,900 tonnes earlier this week from 5,406,675 a week earlier.  The Russian aluminium producer Rusal has successfully challenged the LME’s plans for cutting warehouse exit queues in court, which means that the current long queues in some metals in some locations will continue for the time being.  The LME is likely to find a solution in due course.

Three month aluminium alloy rose to $1,930 per tonne earlier this week, from $1,900 a week earlier.  LME stocks stood unchanged on the week at 54,760 tonnes earlier this week.

Three month copper moved ahead to around $6,626 per tonne earlier this week, from $6,503 a week earlier.  LME stocks rose to 265,175 tonnes from 263,675 tonnes a week earlier.  Shipments of copper concentrate from Freeport McMoRan’s Grasberg mine in Indonesia are likely to resume now that the company has reached agreement with the government; the company is said to have agreed to post a security bond for the construction of a smelter and to sign agreements with smelter builders in return for being exempted from export tax.  Similar deals are open to other companies.

Three month lead held at around $2,067 per tonne earlier this week, down from $2,072 a week earlier, while LME stocks eased to 200,325 tonnes from 200,700 a week earlier.

Three month nickel slipped to around $15,770 per tonne earlier this week, from $16,170 a week earlier.  LME stocks rose to 284,694 tonnes earlier this week, from 283,524 tonnes a week earlier.

Three month tin barely moved, standing at $22,975 per tonne earlier this week against $22,960 a week earlier.  LME stocks edged up to 9,555 tonnes earlier this week, from 9,425 a week earlier.

Three month zinc rose to around $1,993 per tonne earlier this week, from $1,948 a week earlier.  LME stocks rose to 779,600 tonnes earlier this week from 776,400 tonnes a week earlier.

Steel billet’s three month position held at $410 per tonne earlier this week, unchanged from a week earlier. LME stocks dipped to 13,650 tonnes earlier this week from 13,910 tonnes earlier this week.

Gold eased in response to lower demand from Asia.  Spot gold bullion eased to around $1,286.60 per ounce earlier this week, from $1,315.50 a week earlier.  Spot silver eased to $19.88 per ounce from $20.20, while spot platinum eased to $1,432 per ounce from $1,437

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