Heavy sell-off sent base metal prices lower as they ended with losses of anywhere between two to five percent.
Fears of tightening in China along with re-emergence of sovereign debt issues in the Euro-zone witnessed sell-off in almost all the risky assets.
Shanghai cracked more than 5 percent. In the third quarter, Euro-zone GDP grew by a modest 0.4 percent and industrial production contracted thereby adding to the pressure.
On Friday, US equity markets ended lower by 0.8 percent. Japan’s GDP in third quarter grew by 0.9 percent as against expectation of 0.6 percent. Most of the Asian equity markets are largely consolidating with slight negative bias.
Dollar index is also trading modestly higher. In the morning session on LME, base metals are trading mixed with nickel prices trading higher by nearly one percent while lead and zinc trading lower by one percent.
Nickel is the top performer after reports from one of the global consultancy raised outlook for nickel market. The market is expected to move into deficit in 2010 as against expectation of balanced market previously.
On the economic data front, euro-zone is expected to move to trade surplus in September as against deficit in the prior month. From US, advance retail sales are expected to come in higher while empire manufacturing is expected to moderate.
Overall, given the cues from equity markets and expectation of lower manufacturing data from US, we expect weakness in the prices to persist and thereby recommend selling.
ALUMINIUM
Inventory of Aluminium on LME witnessed draw-downs of 2,625 tonnes as against decline of 7,225 tonnes witnessed on the previous day. This marks seventh consecutive decline.
On a weekly basis, stocks decline by 31,725 tonnes. Warehouses in China also witnessed decline in stocks to the extent of 7,391 tonnes
On the fundamental report, Japan’s second largest producer, Sumitomo Light Metal Industries Ltd, expects the sales this fiscal year to a record high. The increased demand is expected to come in from automobile makers.
COPPER
Inventory on LME witnessed draw-downs of 175 tonnes. Warehouses in Shanghai witnessed build-up of 8,572 tonnes in the week gone by.
On the fundamental front, strike by workers at Collahuasi copper mine moved into tenth day as negotiations over a new wage contract remain stalled. The company has reiterated that production is at normal levels.
The copper market continues to remain in backwardation indicating tight supplies in the near term.
LEAD
Inventory of Lead on LME witnessed draw-down of 200 tonnes as against decline of 275 tonnes on the previous day.
After witnessing rising stocks for three consecutive weeks, inventory on London Metal Exchange declined by 450 tonnes.
Given the strong auto sales numbers coming in from India and China, lead prices might continue to outperform the base metal pack.
NICKEL
Inventory of nickel on LME witnessed build-up 240 tonnes as against increase of 282 tonnes witnessed on the previous day.
Inventory increased for fifth consecutive session and thereby on a weekly basis total stocks rose by 1,254 tonnes.
The open interest rose along with price decline indicating build-up of short positions.
ZINC
Reports indicated that China sold 50,000 tonnes of zinc at below the market prices as they move to rein in price gains. This made zinc the biggest loser among the base metal pack.
Inventory on LME witnessed decline of 500 tonnes as against draw-downs of 550 tonnes witnessed on the previous day.
The Lead-Zinc spread went to as high as 4.5 as zinc fell more than lead, however going forward this spread is expected to decline and thereby one can buy zinc and sell lead.
