FX:LME MORNING - Base metals ease, as risk aversion mounts
By: Barbara Stcherbatcheff
London 20/06/2011 - Base metals declined alongside equities on Monday, with nickel falling to its cheapest so far this year, as risk aversion remained high while EU finance ministers struggled to find a solution to the Greek debt crisis.
Three-month LME copper traded as low as $8,955 per tonne early Monday, while nickel tumbled to its lowest in seven months at $21,350 per tonne, as sentiment turned bearish on concerns regarding European sovereign debt - a default in debt-distressed Greece would be a severe shock to the global economy, destroying some of the appetite for industrial metals.
“The metals remain under pressure and with the dollar looking firmer that is likely to weigh on prices. In addition, continued concerns over Greece are likely to keep the market nervous as seen by the weaker tone in equities in Asia,” William Adams, analyst at FastMarkets, said on Monday.
The dollar strengthened against a global basket of currencies, trading as high as 1.4188 versus the euro on Monday, after euro zone finance ministers postponed a final decision on extending 12 billion euros in emergency loans to Greece.
TIME TO SHORT BASE METALS?
As global business conditions show increasing signs of deterioration, analysts are becoming increasingly bearish on the outlook for industrial metals, while gold has gained relative attractiveness.
“The economic circumstances... shall continue to be detrimental to the base metals,” Dennis Gartman, author of the Gartman Letter, said on Monday. “It is common-sensical to be long of gold/short of copper in equal dollar sums for although the former may rise during periods of economic strength, copper’s price can rise ONLY during such periods, while gold may rise also during periods of economic duress but copper’s price almost certainly will fall then.”
Copper traded at $8,988 per tonne, down $107. Declining LME and Shanghai copper inventories have provided some encouragement to medium-and long-term bulls – stocks in London have declined for the past 5 days, while inventories fell by 36 percent in Shanghai last month.
Speculative financial investors expanded their net long positions in copper by 11 percent, or 900, to 8,954 contracts in the week ending June 14th - the third straight week positions have climbed, and a 6-week high. However, the build-up of positions started from a very low level, and should not be overvalued, according to Commerzbank.
In news, power supplies have returned to normal in Chile's northern mining heartland after a power grid failure hit some of the world's biggest copper mines earlier on Sunday, Chile's mining minister Laurence Golborne said, Reuters reported.
Meanwhile, Chile saw copper production decline for a third consecutive month in April. The output fell 3.5 percent to 436,700 tonnes from a year earlier on the back of reduced production at major mines, Escondida and Collahuasi, Fairfax reported.
Aluminium traded at $2,529 per tonne, down $16. The metal is now trading at its lowest level in nearly a month.
Nickel traded at $21,432 per tonne, down $243. Stocks fell 516 tonnes to 110,880 tonnes, a fresh low since late-August, 2009.
Analysts have become more bullish on the metal in recent weeks - LME nickel stocks have fallen by 24,000 tonnes or 18 percent since the start of the year.
In nickel related news, the International Nickel Study Group reported a 3,000 tonne deficit in April (16,000-tonne year-to-April) in the global refined market – the fourth month in a row that a supply deficit was reported - reflecting a tighter fundamental outlook.
“Expectations for a strong supply reaction in second half of 2011 are, in our view, responsible for the negative performance but we believe that demand growth should at least partially absorb additional supplies, particularly once the Japanese steel industry recovers again,” analysts from Credit Suisse wrote on Monday.
The bank predicts that nickel prices will rise to $25,000 per tonne by the end of the year.
Zinc traded at $2,182 per tonne, down $18, while lead traded at $2,406 per tonne, down $44. Lead inventories fell 125 tonnes to 322,575 tonnes, with more withdrawals likely, as cancelled warrants - the metal booked for removal - soared. These rose from 1,825 tonnes to 15,000 tonnes, due to a 13,250-tonne warranting in Singapore, said to be destined for end-use in China.
Tin traded at $24,600 per tonne, down $405. Steel billet was indicated at $559/562 per tonne.
Cobalt was indicated at $35,000/36,999 per tonne, while molybdenum was indicated at $35,000/35,500.
