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Metals put in a mixed, but generally weaker day

02/06/06

Copper and aluminium led the base metals lower on Thursday with copper falling from opening levels around $7,800mt to around $7,340mt and aluminium falling from $2,630mt to $2,530mt. Although the range in aluminium was not that great, volume was large, which suggests there was good two-way business. Although prices ended with a good rally off the lows, the chart pictures have been damaged, especially on aluminium, with prices triggering a head & shoulder reversal pattern, and this suggests there maybe further room for weakness. However, as we have seen throughout this four year rally, the dip-buying has been relentless and therefore there is a good chance of it returning again. That said, there does seem to have been slight change of heart in recent weeks as the market has become more risk adverse, is this a sign that the market has now have changed

Although the fundamentals remain tight for most of the metals, which supports a bullish view, we do feel there is room for a deeper correction from which prices can then head higher again. However, if the market is going to correct then we feel now is the time (next few days, weeks) for it to do so. Inco and Alcoa have tentative labour agreements, investors are worried that tighter monetary policy in the US and China will slow growth and there is the apparent move out of risky emerging markets, not to mention high metal prices causing metal substitution. Indeed if the market fails to extend its correction, then it will suggest the market is still so bullish that little will be able to derail it. For the moment we feel bargain hunting may keep the market in consolidation mode, but we expect further weakness to follow.

- ends -

For further information please contact:

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

BaseMetals.com
12 Camomile Street
London EC3A 7PT
UK

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