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Base metals down, but not out – yet

16/05/06

The base metals suffered a rare sell-off on Monday morning and the action should be seen as a warning of what could lie ahead. Having fallen from over $8500 in early trading to a low around $7800, a fall of over 8% within a few hours, just imagine the carnage that could have been caused had the usual bargain hunting not appeared in copper. Indeed although the price has recovered well, we are not convinced that we have seen the full extent of this correction. Indeed we would not be surprised if more weakness follows as longs decide to get out while the market is still reasonably orderly. Interestingly Monday morning’s move just brought prices down to the levels we were trading last Tuesday. If we returned to the levels we were trading at this time last month, then we would have been back at $6,150, which just goes to show how much prices have moved in the short term.

The other base metals were also down considerably on the day, but likewise managed to bounce off their Monday lows. With little fresh news the market seems poised to jump which ever way the market breaks, which by the close seems to be the upside, but we are not convinced. We feel that something has changed in the market and although there maybe no confirmation of off-market deals, if major shorts have managed get out in a cross-trade type deal then the market may well have less fuel to burn into another rise. Therefore if bargain hunters have been behind today’s recovery it will be interesting to see how committed they are if momentum sags. Whereas we have had a series of shorts having to cover all the way up, perhaps the same will be the case with bargain hunters having to liquidate on the way down. The next few days are likely to be all important; the charts were damaged today, but recovered well. We will need further weakness to confirm that this was not just another blip down. Needless to say, given copper’s reputation and the markets ability to buy any dip almost blindly, we would not be overly surprised to see copper move higher again, but we feel the recent rally is on borrowed time, time will tell. - ends -

For further information please contact:

William Adams
Metals analyst, BaseMetals.com
press@basemetals.com
http://www.basemetals.com

BaseMetals.com
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London EC3A 7PT
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