London 20/04/2011 - Base metals rose sharply on the LME on Wednesday morning, with supply-side concerns, a weaker dollar and bargain-hunting offering support.
Aluminium stole the spotlight, surging to a new cycle high at $2,740.75 per tonne - the highest since mid-2008 - and extending Tuesday's 1.5-percent rally on news that Chinese authorities are moving to combat surplus capacity in the domestic market.
The next stop for aluminium on the technical charts is $2,779 but analysts are split as to whether the metal is fundamentally overbought, with LME inventories lingering near all-time highs around 4.6 million tonnes.
Indeed, some market observers argue that it is not time yet to turn bullish on metals, with sentiment across markets still shaky.
“We are not fully convinced that markets are out of the woods yet,” Commerzbank said. “The medium-term outlook is positive for most metals, but the next days will be important. A weekly close of copper prices above technical resistance at $9,550 would be positive for the near-term outlook.”
The dollar weakened to 1.45 against the euro on Wednesday, supporting the prices of all dollar-denominated commodities.
Wednesday’s economic calendar brings existing home sales at 15:00 GMT, with economists expecting 5 million homes sold in March.
ALUMINIUM SQUEEZE
China’s National Development and Reform Commission will raise power tariffs in several provinces, putting cost pressure on aluminium producers.
China faces a "really pressing" aluminium overcapacity, with the government set to deny approval to new projects and cancel local- level preferential policies for the metal, a spokesman for China's Ministry of Industry and Information Technology (MIIT) said, according to a Citigroup report
The MIIT had had already stopped issuing permits for new aluminium smelting works and now construction of facilities already underway will be halted.
“China might be importing more aluminium over the coming months, which would support the price,” Commerzbank said.
Aluminium traded at $2,725, up $11. Stocks rose a net 9,275 tonnes to 4,604,800 tonnes - the highest in more than a month - due to movements in Baltimore and Chicago.
In the US, aluminium premiums are surging as a shortage of nearby material deepens and business activity picks up amid reports of some second-quarter spot buying.
Copper rose $140 to $9,480 despite stocks climbing a massive 31,750 net tonnes to 453,700 tonnes, the highest since June 2010. But cancelled warrants jumped 16 percent, rising 3,175 tonnes to 22,475 tonnes.
A partial suspension of production at Freeport-McMoRan's Grasberg mine - one of the world's largest copper mines, producing more than 550,000 tonnes in 2010 - due to an accident also underpinned prices.
Nickel was last $605 higher at $25,905. But the alloying metal bucked the inventory trend, with stocks falling 774 tonnes to 118,212 tonnes - the lowest since August 2010.
Zinc gained $27 to $2,356 although inventories rose by five figures for the second day in a row, climbing 26,500 tonnes to 812,100 tonnes - the highest since June 1995 - due to warranting in New Orleans.
Lead was $35 higher at $2,592. Here, stocks rose a net 3,525 tonnes to 301,950 tonnes - the highest since March 1995, although fewer stocks were warranted in Malaysia compared with previous sessions.
The nearby spread tightness in lead still attracted attention on Wednesday as the April date becomes prompt but the backwardation narrowed from earlier this week. TOM/next (tomorrow/next day) ranged between $7.00 and $8.75 backwardation, while the premium for cash/threes, which was at its widest since the end of January on Tuesday at $60/80, narrowed to $20/40.
Tin gained $417 to $32,817. Here, stocks rose 140 tonnes to 20,310 tonnes, the highest since June 2010.
Steel billet was indicated at $530/547.50. In the minors, cobalt was indicated at $36,000/38,300 - stocks hit another record high on Wednesday, increasing 20 tonnes to 354 tonnes. Molybdenum was indicated at $37,000/38,500.
