Base metals slump to levels last seen during the financial crisis

Wednesday, August 12, 2015

The base metals complex saw intense selling pressure overnight as prices revisited levels last seen during the financial crisis. Market participants were still feeling the effects of the PBOC’s move to devalue the yuan against the dollar, a move which caught many by surprise and hit the commodities complex particularly hard. Three month rolling nickel prices traded on the LME plummeted to $9,100/tonne overnight  as prices traded over 15% lower before recovering some of these losses towards the European open with the metal trading 3.35% lower at the time of writing. Nickel prices have lost over 31% year-to-date as China’s demand outlook continues to fade and it is not alone as three month aluminium and copper forwards have traded under significant pressure over the past few months.

The yuan declined against the dollar for a second day, losing 1.94% from the previous close against the greenback as the government’s latest efforts to shore up markets struggled to have the desired impact. Having already traded near its 2% daily trading cap and showing no signs of losing momentum an increasing number of market commentators have voiced their concerns regarding Beijing’s intervention in limiting yuan moves. Trading towards a four year low at 6.4478 against the dollar the recent moves suggest that market forces should be given more credence in determining the exchange rate. Further dollar strength is expected as an anticipated rates rise in the US prompts investors out of emerging markets and back into the US which could spell more trouble for the yuan and other emerging market currencies.

OPEC output hit a three year high in July sending front month Brent futures back below $50/bbl as the supply glut continued to build. Output among OPEC members increased by 100,700 barrels per day to 31.5m bpd, the highest level since mid-2012 according to details published in its monthly report. The demand outlook had already started this week on the back foot on concerns regarding China’s growth potential amid continued intervention by policymakers and central bankers to prop up the market. Investors were also given a harsh reminder that the supply outlook is far from optimistic as OPEC output increased, with Brent futures trading around $49/bbl early on this morning on the pessimistic outlook.

LME nickel prices spike sharply lower

LMNIDS03 Comdty LME NICKEL 3 2015 08 12 07 50 01

CNY continues to weaken against USD

CNY Curncy China Renminbi Spot 2015 08 12 07 49 46

Brent crude futures slip back below $50/bbl

CO1 Comdty Generic 1St CO Fut 2015 08 12 08 04 01

Events for today

0530

JP

Jun

Industrial Production

0630

CN

Jul

Retail Sales

0630

CN

Jul

Industrial Production

0930

UK

Jul

Claimant Count

1000

EZ

Jun

Industrial Production

1530

US

w/e

EIA Energy Stocks

1900

US

Jul

Fed Budget

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