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Copper takes the lead, while the other metals consolidate

02/03/06

A strike at Grupo Mexico seems to have been behind the rebound in copper with prices rallying $90/mt, this was despite another hefty 6,375mt rise in stocks, taking the total to 115,275mt. Surprisingly the other metals ended the day mainly in the red, which is why it looks like copper’s reaction was due more to do with the strike than anything else. The move in copper on the chart now looks quite constructive, as prices have moved above $4,855, but they still need to clear $4,970 to suggest that the downside move is over. Given the lack of support from the other metals, other than gold, today’s move may have been largely driven by short-covering as opposed to fresh (fund) buying.

Economic data out on Wednesday was quiet supportive. In Europe, manufacturing PMI data was generally better than expected with the Euroland figure rising to 54.5 from 53.5 last month, while US PMI extended to 56.7 from 54.8. This better data is in contrast to recent data which has tended to disappoint. However, the metal market indicators still suggest a less tight environment, especially in those metals were stocks are rising. In China, news that alumina imports rose 79% in January suggests that perhaps smelters are not seeing through their plans to cut output by 10%. The rise in IAI total western aluminium stocks to 3.263 million tonnes from 3.192 million tonnes was another reminder that there is little apparent shortage around.

Judging by the charts, with the exception of zinc, the metals seem to have stalled and even copper with its two strong up days still hasn’t broken above the mini downtrend line that can be drawn from the high on February 7. This suggests the market could still go either way.

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