Sector movers: Miners hit by trade concerns, aluminium in focus

Miners and industrial metals players were heading lower at the start of the week as base metals prices were beaten down further, amid trade tensions and emerging market concerns.

As seen for some weeks, worries about further souring of trade relations between the US and China in particular were hitting copper prices, added to lingering doubts about Chinese growth and recent angst about wider emerging markets.

"A challenging global environment stemming from trade tensions and EM concerns are beating down base metals," said analysts at broker SP Angel, with aluminium of particular concern as Russia's Rusal, the world's second-largest supplier of aluminum, will be locked out of crucial contract negotiations beginning this week on the sidelines of the Metal Bulletin aluminium conference due to US sanctions.

Unless the US Treasury lifts the sanctions, Rusal will be sidelined from the annual negotiations "and could soon be forced to scale back output across its refining operations which form a fundamental part of the global supply chain", Angel said. "Without a resolution this month allowing it to sign new contracts, Rusal may be forced to start shutting down some production lines."

"The looming supply shock is not being reflected in aluminum prices, which are back at the same levels as before the sanctions were announced. Traders appear to be taking comfort from the Treasury’s assurances that it is targeting Deripaska, not Rusal’s workers or its global aluminum business...Options traders are bracing for turmoil, as implied volatility begins spiking back towards record April levels. Alumina, the key raw material consumed to manufacture aluminium, is also surging back towards all-time highs."

US President Trump has also been ramping up his threats to hit Chinese imports with another $267bn of tariffs.

"The $200bn we are talking about could take place very soon depending on what happens with them," Trump said in comments made on Air Force One, as he travelled from Montana to South Dakota. "To a certain extent it's going to be up to China. And I hate to say this, but behind that is another $267bn ready to go on short notice if I want. That changes the equation."

The general industrial sector was lifted as plastics manufacturer RPC Group said it was in talks with two buyout groups.

The FTSE 250 group, which has come under pressure from investors over its growth plans, said talks were taking place with both Apollo Global Management and Bain Capital.

There has been a fair amount of M&A in the international sector, pointed out analysts at JPMorgan Cazenove, including Amcor for Bemis, Transcontinental's offer for Coveris and AptarGroup’s bid for CSP Technologies.

However, of RPC's peers, only DS Smith was in positive territory, with Smurfit Kappa, Smiths Group and Coats Group were all in the red, not helped by a spike in the pound on positive Brexit comments from the EU's Michel Barnier.

The UK's bigger high street banks were higher, tracking a solid performance from their European counterparts.

Banks in Italy were particularly strong as the country's finance minister said yields would drop when the government lays out its budget for 2019. In an interview with Il Sole 24 Ore, Giovanni Tria said proposals for a flat income tax, a citizen's income and reversing the previous government's increase in the retirement age would be "compatible with the European Union's limits on public finances."

Top performing sectors so far today

Leisure Goods 8,941.61 +3.17%
General Industrials 6,781.23 +1.30%
Oil Equipment, Services & Distribution 14,287.36 +0.67%
Food & Drug Retailers 4,064.47 +0.62%
Household Goods & Home Construction 16,686.50 +0.60%

Bottom performing sectors so far today

Industrial Metals & Mining 4,224.49 -1.24%
Technology Hardware & Equipment 973.28 -0.96%
Tobacco 40,995.46 -0.89%
Construction & Materials 6,165.22 -0.85%
Mining 15,741.17 -0.78%