FS: Metals buffeted by dollar moves, prices cling to gains
London 24/11/2010 - Base metals checked back from early highs during bumpy Wednesday LME pre-market trading, buffeted by currency movements in what is expected to be another turbulent session.
Prices reversed initial upward direction as the dollar regained its upside momentum to sweep to fresh two-month highs against the euro of 1.3284, reflecting the eurozone's debt problems and tension in Korea.
This saw gains trimmed in the metals complex - prices had been staging a tentative bounce after a two-day sell-off. The US currency stood at 1.3315 recently.
"Given the deterioration in the fiscal/economic and geopolitical backgrounds and considering the rapid gains seen since June, there is room for deeper corrections as profits are taken," William Adams of FastMarkets said.
Upside ambitions in metals prices are limited, with the complex likely to be susceptible to choppy movements over the remainder of the week due to broader economic and geopolitical tensions. Notably, markets will fret over further developments on the conflict in the Korean peninsula and the eurozone debt crisis, which have hammered metals lower this week.
"Yesterday's sell-off is contrary to the broader fundamental picture... As an increasing number of economic indicators confirm the fairly positive picture, we think downside risks for industrial metals from current price levels should be limited," broker Credit Suisse said.
Today, South Korea warned North Korea of "enormous retaliation" if it took more aggressive steps after Pyongyang fired scores of artillery shells at a South Korean island in one of the heaviest attacks on its neighbour since the Korean War ended in 1953.
And worries over sovereign debt contagion in Europe refuse to dissolve despite the Irish weekend bailout. Ireland agreed to an EU/IMF rescue package over the weekend but the political crisis in the aftermath of this points to a bumpy road ahead, while Portugal and Spain are seen as the next weakest links.
"This uncertainty is going to remain for some time as the political process to have the eurozone work together is difficult," LME ring-dealing member Triland Metals said. "Copper prices could suffer during this work out process, but still have the potential to rally again."
Attention will also be focused today on a clutch of US economic figures following data yesterday that showed the economy grew faster than previously estimated in the third quarter, although a slump in sales of existing homes in October indicated the recovery remains fragile.
Figures due today include the weekly initial jobless claims, October durable goods order and new home sales, just ahead of the Thanksgiving holiday on Thursday. The run-up to the holiday is likely to see some volatile movements in prices as well.
COPPER HOLDS GAINS, SUPPLY-SIDE IN FOCUS
Copper, which staged a bounce from close to $8,000 yesterday, rose almost to $8,300 per tonne and then fell back to $8,205, up $65 still, with supply-side developments in focus. Inventories fell for the 14th day in a row, dropping a net 925 tonnes to 357,125 tonnes, the lowest since October 19, 2009.
Overnight at Collahuasi in Chile, management gave workers more time to accept a contract offer to settle a 20-day strike.
Officials at Collahuasi, the world's third-largest copper mine, which is owned by Xstrata and Anglo American, had said the wage offer would expire at midnight on Tuesday. But they ended up extending the deadline for three days until late on Friday after a vast majority of workers remained on strike.
Lastly, the latest International Copper Study Group (ICSG) report showed the world refined copper market recorded a 363,000-tonne deficit during the Jan/August period compared with a 47,000-tonne shortfall in the corresponding 2009 period.
Elsewhere, aluminium pulled back from a test of the $2,300 level to trade at $2,270, up $15 still, with inventories declining for a fifth successive day - down 2,925 tonnes at 4,291,675 tonnes.
Zinc traded at $2,106, up $21, with stocks falling for the fourth day in a row - down 500 tonnes at 632,700 tonnes. Lead held at $2,210, up $23.50. Here, inventories notched up their seventh successive daily decline, dropping 25 tonnes to 203,600 tonnes.
Nickel, fairly resilient yesterday, rose to $21,820, up $220, with inventories dropping 384 tonnes from five-month highs to 130434 tonnes. Tin, by contrast, saw stocks rise for the fifth of the past six days - up 275 tonnes at 14,655 tonnes, the highest since August 10. Business at $24,145 was up $245 still.
Steel billet traded at $517, up $7, while inventories remained at 53,560 tonnes for the seventh successive day.
In the minor metals, cobalt and molybdenum were quoted at steady levels of $35,000/37,500 and $30,500/36,500 respectively.
