By Leon Westgate
The main action this morning has been in the currency markets, with higher than expected UK inflation, shortly followed by worse than expected German confidence numbers sending ripples through the FX markets and seeing the dollar strengthen.
The base metals initially rallied during overnight trade, with copper again leading the way on the back of steady Asian buying interest. The stronger dollar has since weighed on prices however, eroding much of the metals’ early gains.
After a month of steady and often sizeable stock draws, LME aluminium inventories jumped higher this morning, with on warrant stocks gaining by a net 46,000 mt. The main location for the inflow was Detroit, up 41,275 mt, while Chicago, Toledo and Baltimore also saw smaller gains. The data had little impact on the aluminium price, with the metal’s weakness this morning due to the stronger dollar rather than anything else.
Trade commodities or equities from across the globe. Join Now
Copper has had a much busier start to the day compared to Monday, with the metal again rallying overnight on the back of SHFE-LME arbitrage-related buying. Of note, although the arbitrage window is open, the nearby SHFE forward curve is in contango, and physical metal in Shanghai is trading at a ~$40 discount to the February contract.
All this points to a rather subdued physical market at the moment, something we expect to continue until after the Chinese New Year in mid February. Beyond that period however, the arbitrage activity now does suggest that the Chinese market is gearing up for a stronger period of demand once the New Year holiday has passed.
In other news, the International Nickel Study Group estimates that the nickel market was in a 3,000 mt deficit in November 2009, with demand put at 107,000 mt, compared to 103,000 mt of supply.
Meanwhile, MMG - part of China Minmetals Corp - has restarted loading ships with concentrate from its Century mine in Australia. Operations at the Karumba port had been suspended due to a cyclone affecting the region.
