Tin steps back from record highs, strong dollar weighs on erratic metals
By Martin Hayes - Chief Correspondent, <mailto:[EMAIL PROTECTED]> [EMAIL PROTECTED] (+44(0)20 7929 6339) <http://premium.basemetals.com/news/editorial.aspx?GUID=608042416264377&V=0# #> Email this page to a friend - <http://premium.basemetals.com/news/editorial.aspx?GUID=608042416264377&V=0# #> Printer friendly version London, 24 April 2008 - Base metals ebbed and flowed throughout another erratic session on the LME on Thursday, with a strong dollar and mostly negative US data keeping the bias to the downside towards the close, while tin, which was earlier at a fresh record high, was off its best on profit-taking. The dollar, which hit an all-time nadir of $1.6017 against the euro earlier this week, has since rallied strongly and was trading around $1.5650 by late-afternoon.This exerted pressure on gold, which fell to three-week lows under $890 an ounce, and crude oil - also lower at $117.20 a barrel - which was hardly conducive to commodity sector sentiment. "It is just following the dollar today, and, for copper, waiting for some definite news from Chile. But, at the moment, it is just very, very difficult regards direction - you can't really call the next couple of hundred of dollars," a trader said. On the data side, US March new home sales came in at 526,000, against an expected 580,000, while durable goods orders fell 0.3 percent, versus a forecast rise of 0.1 percent. This offset data showing that a less-than expected 342,000 people applied for jobless benefits in the latest week. Wider financial trends have been mixed as well over the last week, which contributed to the pattern on the LME -- metals are finding it increasingly difficult to lock in on other markets at present. Turnovers overall have fallen away as well, which reflects a reduced appetite for risk in the current troubled financial environment. TIN COMES OFF HIGHS, RARE INVENTORY INCREASE SEEN Tin prices, which jumped by 7.7 percent on Wednesday, rose by a further 2.1 percent to hit a new record high of $24,602 a tonne initially, but then backtracked to $23,700, down $400, amid profit-taking and with inventories rising 160 tonnes from 2-1/2 year lows to 7,950 tonnes. The market has soared by over 50 percent since the start of the year and upside potential remains solid. As well as low inventories, less metal is likely to be available from China and Indonesia this year -- the world's top producers. "A potent mix of falling stocks, constricted Indonesian supply and bullish Chinese trade data has created a supportive environment for higher tin prices," Barclays Capital said. China's Antaike has estimated that China's net exports could be 43 percent lower this year than in 2007. Supply tightness amid dwindling inventories remain the driver for the fundamentally-strong market, as well as technical buying, and on the LME the cash/threes spread has moved into a $50/80 backwardation. Latest LME data shows that one long holder accounts for between 50 and 80 percent of warrants and cash. Also, recent option business suggests there is delta covering taking place -- there are 2,130 lots of upside calls, equal to 10,650 tonnes, open for the December $25,000 strike. This may well be an investment fund position "With prices going into vertical take off over the past couple of days, some sort of correction seems likely," broker Standard Bank said. "However, trying to pick the top of the market, especially one which has shown such good momentum, isn't a particularly attractive proposition, with intraday short covering likely being one of the factors that has seen prices surge higher," it added. COPPER UNABLE TO FIND CLEAR DIRECTION Copper struggled, despite Chilean state copper producer Codelco on Thursday again suspending operations at its Teniente division, citing strike action by subcontractors that has kept two other divisions shut for nine days. Codelco had briefly closed Teniente earlier this week. However, the market ranged aimlessly, unable to hold above the $8,600 level and push towards a a re-test of last week's record high of $8,880. It closed the session at $8,525, down $30. Codelco has said that the current strike is costing $10 million a day. The company has reached a settlement with some of the unions representing striking contract workers at its El Teniente copper mine. Codelco, the world's largest copper producer, agreed with three of the four unions at Teniente to pay workers an advance on their 2008 bonus. This is taking place at a time when ccopper stocks are historically low, with LME inventories falling 225 tonnes to 112,200 tonnes today, enough for just two days of world consumption while traders also expect Shanghai inventories to fall when weekly data is released on Friday. Aluminium's losses gathered momentum during the afternoon, with the market dipping to $2,987 at one stage, its lowest since April 16 before final trade at the psychological $3,000 level, down $95, or three percent. The market was knocked back by a resumption of bumper inventory increases, as LME stocks rose 11,900 tonnes to 1,038,850 tonnes, the highest since June 2004, due to a large warranting in Baltimore. Zinc was little changed at $2,240, up $1, having been inhibited overhead by the International Lead and Zinc Study Group (ILZSG) forecasting a 215,000-tonne surplus this year. Lead, however, fell $46 to $2,759, as inventories rose rose by a hefty 1,100 tonnes to 54,750 tonnes, the highest since October 2006. ILZSG also estimated a 26,000-tonne surpus for 2008. Nickel was steadier as stocks dipped 288 tonnes to 51,978 tonnes, closing at $28,905, up $205. Steel billet was the other stellar performer, with the Med contract for August delivery reaching an early fresh all-time high at $965 a tonne, up $15 from yesterday's close, ahead of the 'hard launch' on the LME floor next Monday. The Far East contract was bid at $940, up $35, or 3.9 percent. (Additional reporting by Perrine Faye)
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