By Leon Westgate
The base metals had a fairly stable start to the week, trading sideways to higher in spite of a marked deterioration in the euro against the dollar. This morning has been more volatile however a broad-based sells off during Asian trade triggering a bit of panicked liquidation this morning.
All of the base metals have come under heavy pressure, though the complex has stabilized. Looking ahead to this afternoon, their fortunes depend very much on the US market and whether they also panic or see the pullback in prices as a buying opportunity. Data-wise, the main figures to watch will be the US Consumer Confidence numbers for June, expected at 62.5 from 63.3 in May.
The sell-off was due to a combination of factors, including a sharp fall in the Shanghai composite index as Chinese participants took money off the table - ahead of Agricultural Bank of China’s IPO) - and a downward revision to the Conference Board’s April leading indicator to 0.3% from the original 1.7% figure. The sell off was further exacerbated by confusion stemming from problems with newswire price feeds overnight.
With the end of the first half of the year fast approaching, it is likely some participants had positioned them selves in anticipation of position housekeeping activity and a quarter-end rally. It was perhaps the liquidation of those weak long positions that exacerbated the sell-off this morning.
Copper briefly traded below $6,600 this morning, before picking back up during the late-morning. Copper’s turnover has again been head and shoulders above the rest of the base metals, with copper leading the rest of the complex as a result. Aside from the price movements, tightness around the August date remains a feature of the aluminium market.
In other news, UC Rusal has said that aluminium ETF is due to start trading as early as next month. According to the Rusal CEO Oleg Deripaska, Rusal and other producers are in talks to supply metal for the fund.
Meanwhile, Beijing Antaike estimate that lead recyclers in China have idled around 8% of capacity due to high input costs - in this case used Lead Acid batteries.
In contrast, low primary metal prices are reportedly squeezing margins for Chinese lead smelters, with the Antaike estimating that average lead production costs in China are 14,000 Rmb, just below current cash prices of 14,950 Rmb. In most cases the idling of capacity has taken the form of maintenance shutdowns, with producers in need of imported concentrate the ones suffering the most.
