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Physical buying overnight lifts metal prices off the lows

24/02/06

Metals opened up on a weak footing with aluminium limit down in Shanghai on Thursday. The weakness then spread to the other metals and the day ended well into negative territory. After being as low as $4820/mt, overnight trading saw copper prices start to firm on short-covering and physical pricing. This was then further boosted by the 10,129mt fall in copper stocks on the Shanghai Exchange. Rumours of a large aluminium stocks increase in Shanghai turned out to be false with stocks only rising 1,185mt. This has lifted aluminium $30/mt off its lows from yesterday.

So the markets are looking a bit mixed as we start Friday. After yesterday’s heavy selling thought to be largely fund driven and reports of further producer hedge selling in aluminium, the market looked as though it was set up to test the downside again. However, the lower prices do seem to be attracting consumer buying which has so far prevent follow through selling. On the charts yesterday’s weakness now makes the rebound from late last week look more like a flag, which could have negative implications, but while prices are still comfortably above the trend lines, which are around $2240 on aluminium and $4735 on copper, the overall mode seems to be one of consolidation. It will be interesting to see whether yesterday’s weakness has rattled other longs enough to make them liquidate, or whether the physical buying will be sufficient enough to absorb any follow through selling.

Today’s US data includes Durable Goods Orders which are expected to fall 1.2% after healthy numbers in recent months on the back of good aircraft orders.

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