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Metals consolidate after Tuesday’s early show of strength

11/01/06

Copper is easing back in early trading from yesterday’s fresh highs at $4630, which also saw aluminium post highs at $2346 and nickel extend its gains to $15,050, now up 31% from the November lows. Surprisingly the move up in copper coincided with a hefty 4,075mt rise in copper stocks, which took stocks above the 100,000mt level. However, the gains could not be held and prices slipped back by the close. Also of note was the fall off in mining equities with the UK majors falling between 3% and 5.5%, following sell-offs in some of the US miners earlier. Although some of the downgrades were as a result of lower production (which is bullish, but already in the price, for copper) there were also some reports of falling demand for some of the metals as well.

However, the funds where the main drivers that took prices higher and with the dollar also recently under pressure and with talk that the Chinese may look to diversify their reserves into commodities, the overall environment for the metals looks supportive, even though it remains vulnerable to a price correction. Nickel now looks set to play catch up with the other base metals after all the destocking in H2’05 and if the stock rise of late starts to abate, then prices may well hold these higher levels and build on them. That said in the near term prices look over extended.

Today US data includes MBA mortgage applications and the EIA petroleum status report. With the consumer credit report out earlier in the week showing a $0.6bn fall in new credit against expectations for a $5bn rise, the market may start to watch consumer activity for signs of weakness. Any such development could have an impact on the economic outlook.

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