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Copper gives up early gains after stocks rise

06/02/06

The metals put in another strong day on Friday, with most of the metals setting new highs as the bullish tone continued in light volume. The healthly US employment data no doubt helped fuel bullish sentiment. With China now back in the market after the New Year there was some catching-up in early trading on Monday, although the release of LME stocks, that saw copper up 4,025mt, saw copper dip$30/mt. Again this just goes to highlight how volatile this market is becoming. Overall economic data out last week remained mixed, but the fall in the unemployment rate to 4.7% was encouraging (and potentially inflationary if it pushes up wage costs), but countering this bullish number were the falls in the ISM manufacturing and non-manufacturing surveys, which may be warning of a slower first quarter. Globally economic data is also mixed. Japan’s leading economic indicators came in stronger than expected, German construction index hit its highest level since 1999, although the January European Retail PMI indicates a weak start to the year with the index falling below the all important 50 level to 49.7.

Overall the trend and momentum in most of the metals is up so until something changes sentiment or until the sellers emerge in force, the path of least resistance is up, even if a vacuum is developing in its wake. The extent of how favoured zinc has become can be seen by the price difference between aluminium and zinc. This stood just short at $650/mt in July 2005, fell to $370/mt by year-end and now stands around $220/mt.

Monday is a quiet day for US economic data which may enable the metals to concentrate on their own particular situation.

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