Markets turn lower as reaction to rally sets in, lead below fresh peak
By Martin Hayes - Senior Correspondent, <mailto:[EMAIL PROTECTED]> [EMAIL PROTECTED] (+44(0)20 7929 6339) London, 04 October 2007 - Base metals largely traded at softer levels on the LME on Thursday, with a downward reaction seen after this week's strong rally to cycle highs, while there was also some caution ahead of Friday's key jobs report in the US and before the much-awaited LME week. "By and large it has largely been sideways this morning.We've had some good gains all week and it may be a case of consolidating now. There was a bit of pressure from cash sales in the officials, but they always get absorbed. Lets see what happens later," a floor trader said. Among the high-fliers, copper was re-tracing from Wednesday's five-month highs, shedding one percent, lead, after touching a fresh record high in early trade, slipped back as well and was down 1.6 percent, while tin, around two-month peaks late in the previous session, eased as well. "Prices have softened across the board this morning with producer selling and profit taking both hampering any rallies from the systematic community," a trader said. As in recent days, activity may pick up during later afternoon trading, as supply concerns and dollar weakness continue to lend support to the metals. Also, this tends to be the time when the US investment community picks up the baton. But whether the uptrend is resumed and new highs are reached is open to question. Market participants in China are away all this week due to the National Day holidays. LME week, an annual gathering of the global base metals industry, kicks off next Monday and as it is tied with the release of fresh price forecasts and supply/demand outlooks from major players in the industry, it can set the mood for the rest of the year. Meanwhile, interest rate decisions in Europe came as no surprise. The Bank of England kept interest rates steady for a third month running at 5.75 percent and the European central bank maintained its key rate at four percent. On the wider data front, the key number will be Friday's US non-farm payrolls data for September, which is expected to rise by 94,000. Today, as a precursor, weekly jobless claims came in at 317,000, versus expectations of 310,000, an outcome that had little impact. COPPER STALLS AFTER HITTING RESISTANCE, LEAD TURNS BACK FROM ALL-TIME HIGHS Copper eased by $90 to $8,200 a tonne, having climbed as high as $8,315 the day before, its highest since May 4, when it reached its 2007 peak of $8,335. LME inventories rose by 700 tonnes to 131,625 tonnes, but nearby supply remained tight, with over 90 percent of all copper warrants held by a single party. The cash/threes backwardation remains at a wide $70/80. "Copper needs to break $8,375-8,380 technical congestion for $8,400. Till then there will be more sellers than buyers," consultants Insignia said. A strike by workers at Southern Copper in Peru entered its second day, affecting the Cuajone and Toquepala mines which produce 370,000 tonnes of copper annually, and the 350,000-tonne Ilo smelter, but the government said it was trying to cajole both sides to negotiate a new wage contract. Lead fell back to $3,580/3,585, down $60, after setting an early fresh all-time high of $3,655. Like copper, lead is in the midst of a supply crunch, with more than 90 percent of warrants controlled by a single party, said to be a bank. In the rings, freer availability emerged, however. TOM/next (tomorrow/next day) started out offered at $3.00 backwardation, but was aggressively offered in to eventually trade at $2.00 and $3.00 contango, while LME compliance officials monitored ring activity today. The cash/three backwardation stood at $110/90 from $99 on Wednesday. Inventories fell by just 50 tonnes to 22,300 tonnes, but remained near their lowest since 1990. "One or two people have got all the lead stocks, one particular bank in fact, and they are not going to release them. As long as they keep it liquid in the nearbys, the LME won't interfere and I think they will continue to do that," another trader said. Dealers said a slew of supply side disruptions are underpinning the market, the latest of which being the loss of production at Xstrata's Mount Isa lead-zinc concentrator due to a fire last week. A ban on exports of lead concentrate from the Australian port of Esperance due to birds poisoning continued to lend support. "We continue to view lead prices with an upside bias in light of the market's compelling fundamentals and anticipate further price gains and hold a short-term price target of $4,000," Kevin Norrish of Barclays Capital said. TIN REVERSES UNDER $16,000 BUT MAY TEST 27-YEAR PEAK AGAIN Profit-taking was seen in tin, which fell back to $15,950, down $225 from the previous kerb close, although dips were being supported. After weeks of sideways trading around the key $15,000 level, tin finally broke higher on Wednesday, hitting a two-month high at $16,201 during after-market hours. Analysts said the metal could re-test its 27-year high of $17,050 set in August, buoyed by a combination of a tight concentrate market, reduced supplies from the world's two largest supplies, China and Indonesia, talks of a potential tin export quota in Indonesia and declining LME stocks -- they fell 135 tonnes today to 13,685 tonnes. "We continue to be positive on tin price prospects and believe further price gains are in the offing as the tin supply side continues to be problematic," Norrish said. In other metals, nickel eased $625 to $30,800/30,900, despite a 36-tonne inventory decrease to 32,928 tonnes, as the stockpile remains very close to the highest since March 2006. Zinc dropped $100,or 3.2 percent, to $3,010, ignoring data showing stocks fell by 250 tonnes to 60,025 tonnes, the 17th successive daily decline and a fresh low since March 1991. Aluminium continued to correct lower after bumping into strong resistance around $2,500, with business down to $2,438, down $44. (Additional reporting by Perrine Faye)
