By Leon Westgate
Base metal prices remain erratic, with the lack of interest in the market seeing the metals approach something of a Catch 22 situation. On one hand, market participants seem unwilling to get involved or take large positions in the LME metals until volumes build up and a trend emerges.
On the other hand, the current lack of turnover across the complex is exacerbating the directionless and volatile nature of the base metals markets, further deterring participants from entering the market.
Part of the reason for the lack of direction is the wider economic uncertainty. The Q2 earnings season over the next 10 days or so should help to provide a bit of clarity on how companies are performing, as will the results of the bank stress tests on July 23rd. The key Chinese economic data released on Thursday will also play an important role in determining how the base metals perform. In the meantime however, technical signals, the currency and the equity markets continuing to dominate price direction.
Copper came under pressure overnight, suffering a knee-jerk reaction after China re-stated that it would continue to clamp down on real-estate speculation. Prices have quickly recovered however, with copper rallying heading into the early afternoon on the back of a weaker dollar. Ultimately, the Chinese housing problem is due to a lack of affordable housing in major cities rather than pure speculation, and arguably something that will only be alleviated through the construction of social housing.
Aluminium turnover remains very thin indeed, with the focus again on the tightness around the August date. Zinc is the only metal to have seen decent turnover, with the initial sell-off attracting decent buying interest. Overall zinc remains range bound, with the volumes suggesting that the market is happy for that range bound nature to continue.
