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Mixed metals - copper and tin down, while the rest headed higher

27/02/06

The metals had a quiet days trading on Friday. For most of the day prices were edging higher with copper testing resistance above $4,900/mt, but by the close selling emerged in enough force to see copper prices close near the day’s lows at $4,840/mt. This suggests a change of heart as the market managed to shake off the fact that Shanghai copper stocks fell 10,129 tonnes. Not long ago any bullish development such as this and the disruptions at Grasberg, would have been latched on by the bulls, but today’s action suggests the climate has changed. LME copper stocks continued to climb last week, adding some 3,400 tonnes, while cancelled warrants climbed 375 tonnes. On the broader market, the UK mining equities also had down day, with equities falling between 1% and 1.8%, which also suggest continued profit-taking.

As the markets continue to consolidate prices are gyrating on a mixture of fund liquidation and producer selling which is being countered by consumer buying and speculative bargain hunting. While these two sides seem equally matched at the moment, the overall consolidation looks set to continue, but consumers may be less inclined to build too much inventory given these still high prices. The much worse than expected durable goods orders that fell 10.2% against expectations for a 1.2% fall, (although renowned for its volatility) may also instil some doubt about the health of the US economy. The fact that metal prices have not sprung back up to the highs also suggests that the funds are not as bullish as they were, which may mean there is still some room on the downside.

In early trading on Monday copper and aluminium were weaker in Asia on fairly good volume, which shows some follow through to copper’s weakness on Friday afternoon. The question is whether the lower numbers will continue to attract sufficient consumer buying. US data out today includes new home sales which are expected to rise to a rate of 1,278,000 units after the 2.9% rise to 1,269,000 rate in December.

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