Base metals lifted as Chinese regulators consider short selling probe

Thursday, November 26, 2015

Base metals prices rebounded firmly overnight as investors reacted warmly to the news that Chinese regulators were considering launching a probe into short selling on local exchanges, compounding the impact of anticipated production cuts from Chinese nickel smelters. Three month LME copper prices led the charge higher, trading towards $4,741/tonne at one point before a modest paring back below $4,650/tonne towards the European open. Prices are still some 2.4% higher from the open and could gain further on the upside after a heavy routing this year which has seen the red metal lose over 26% year to date, with all the other base metals registering similar losses. Regulators have received a request from the China Nonferrous Metals Industry Association to investigate short selling practices within the country and we will watch how this story develops with nickel potentially gaining further lift throughout the remainder of the week as producers meet tomorrow to discuss the possibility of cutting supply. Having been the worst performing base metal this year, down over 40% year-to-date, any planned production cuts would be seen as a positive step in addressing the persistently large fundamental imbalance.

Yesterday’s Autumn Statement saw Chancellor George Osborne tackle the deficit from another angle after failing to curb welfare spending, instead introducing a 2% increase to council tax to help pay for social care while wielding the axe on departmental budgets. Spending in transport, business, Defra and energy will be curtailed significantly by -37%, -17%, -15% and -22% respectively while stamp duty on buy-to-let properties and second home buyers would be increased by 3%. The overall £10bn budget surplus by 2020 was still on track but will largely be driven by an increase in taxation compared to a decrease in public spending. The pound managed to rise modestly against the USD, gaining 0.3% yesterday, but has since given back some of these gains as sterling trades towards 1.5100 against the greenback.

Front month Brent futures managed to post gains for a fourth successive session yesterday as intraday dips towards $45/bbl were firmly bought into and futures ended the session at $46.17/bbl after attempting to gain a foothold at $46.50/bbl. While the day’s gains were modest at best the four day rally has been the longest run since February as bearish fundamentals have kept the global crude benchmark under pressure throughout most of the year. Activity this morning has seen a slight tempering in crude prices as Brent trades around $45.80/bbl early on and despite the potential for any rising geopolitical tensions to add additional risk premium to front month futures, investors will be quickly reminded of the persistent supply glut which could see any substantial rally higher soon lose momentum.  

LME nickel prices rally for the third straight day

LMNIDS03 Comdty LME NICKEL 3 2015 11 26 08 10 30 

GBP offered some encouragement from the Autumn Statement

GBP Curncy British Pound Spot 2015 11 26 08 10 45

Events for today

0855

DE

Nov

GfK Consumer Confidence

2330

JP

Oct

CPI

OE: 

Dec  Natural Gas (NYMEX) 

 

Dec Heating Oil & RBOB (NYMEX) 

 

Dec  Copper, Gold & Silver (COMEX) 

Topics: Copper, Brent, LME, GBP, Nickel
More from: Kash Kamal