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Copper rebounds strongly off lows, zinc and lead hold up well, while nickel gets pummelled.

24/06/05

After a nervous day’s trading that saw copper fall from opening levels of $3347 to $3260, copper did well to close back around the $3315 level and put on further gains this morning. Also with the backwardation moving out again, back to $235 from lows around $215, it may well be dangerous to think the bull market in copper is over. Lead also managed to close on the day’s highs after dipping to $927, aluminium closed mid-range while zinc avoided falling back too far during the sell-off. Tin was the only metal to not to extend its losses yesterday, although recently it has been leading the decline. Nickel has now taken over tin’s position as the weakest metal.

Overall it is not surprising that metals are seeing a pull-back especially with the continuing strength in the dollar, which measured by the dollar index challenged recent highs yesterday at 89.35. In addition the summer slowdown and high oil prices, with oil hitting $60 a barrel, are also likely to dampen metal demand and with the equity market also falling heavily yesterday sentiment may be damaged further.

That said, given the low visible stock levels any supply disruptions could easily delay the metals from correcting further. In focus at the moment are the possibility of closures at European aluminium smelters due to high energy prices and the potential for strike action at various copper operations, including those owned by Asarco and Placer Domes Zaldivar mine, where workers have rejected a contract offer and could go on strike. Last year the mine produced 148,000mt. Also changes in China’s metal consumption and supply will remain all important. China’s Jan-May refined copper imports were 4.1% lower at 554,805mt, which ties in with the view that China is undergoing a inventory correction and would also explain why in recent months stocks on the Shanghai exchange have been low. News that China’s Jan-May nickel imports are up 132.9% to 40,004mt helps explain the overall strength of the nickel market over the second quarter (apart from the past three days), but also suggests that if the steel market is slowing down, then imports of nickel may also slow – freeing up more for the rest of the world or to go into stocks.

All in all further weakness in the metals would not be surprising in the near term as the market undergoes a correction / shake-out, but equally it would not be surprising to see copper, after a correction, to move up to new highs again, before eventually succumbing to the transition from supply deficit to surplus. The other metals may also follow copper’s lead as generally their fundamentals are fairly balanced and stocks are low. Today sees US durable goods orders which are expected to rise 2%, mainly on the back of good orders for aircraft.

- ends -

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