After opening on the higher side, base metal prices ended lower with the exception of aluminum which ended with gains of close to one and half a percent. Initial jobless claims rose while the economic data from Euro zone came largely positive.
US equity markets ended lower by 0.2 percent as investors booked profit ahead of key non-farm payrolls data. Taking cues most of the Asian equity markets are also trading lower though with modest losses.
Dollar index is also trading flat. In the morning session on LME, base metal prices are trading largely flat.
On the economic data front, trade balance and current account data from Euro zone are largely expected to come in higher while industrial production is expected to contract.
The key data to watch today would be the non-farm payrolls data from US. Expectation is that there would be higher job additions than in the prior month thereby bringing the unemployment rate down to 9.7 percent.
Overall, we expect base metal prices to remain on the lower side initially but they might recover later in the day. Aluminum and lead are looking relatively strong to other base metals as reports indicated aluminium buying by some funds and thereby volumes also almost doubled.
Lead market is in backwardation and the closure of operations at an Australian mine is expected to keep the supplies tight. So lead and aluminium might outperform other base metals.
Aluminium
Aluminium was the top gainer among the base metal pack as it ended with gains of 2.2 percent on LME and 1.4 percent on MCX.
Aluminium stocks on London Metal Exchange witnessed build-up of 925 tonnes as against decline of 1,025 tonnes on the previous day.
All the three, open interest, volumes and price rose indicating strength in the market and thereby upward movement might continue.
Copper
Copper inventory on London Metal Exchange rose for 16th consecutive trading day as stocks increased by 150 tonnes.
Copper market though continues to remain in backwardation the premium in the spot market has declined to $15/tonne as against close to $40/tonne on the previous day.
Reports indicated that workers at Freeport copper mine in Peru, the nations third largest might go on strike from Jan 14 owing to dispute regarding health and overtime.
Lead
Lead prices ended with marginal losses as tight supply conditions limited the losses.
Stocks of lead on LME witnessed a modest decline of 50 tonnes as against rise of 1350 tonnes on the previous day. The basis on LME continues to remain in negative (-$27/tonne) indicating tight supply conditions.
Lead mine in Australia owned by Ivernia suspended its operations on the back of government order. The company accounts for roughly 2 percent of world lead production.
Nickel
Nickel prices continue to underperform for second consecutive day on the back of profit booking.
Nickel stocks on London Metal Exchange rose by 180 tonnes as against decline of 30 tonnes on the previous day.
Both the basis and cancelled warrant ratio are giving no clear indication of future price movement and thereby it might continue to track other base metals.
Zinc
Zinc stocks on LME declined by a modest 200 tonnes
The cancelled warrant ratio, which indicates the material earmarked for delivery declined to 0.24 percent.
This is indicating that the stocks of zinc might not witness draw-downs further and in fact might witness an increase. So zinc prices might underperform most of the other base metals.
The lead-zinc spread ended at 9.65 after making a high of 11.2 during the day. This spread has potential to rise further in the near term.
Robin Bhar, senior metals analyst with Credit Agricole CIB says that tightening market balances and declining inventories are likely to underpin further price strength in base metals, with investors attracted to hard assets in an environment of low interest rates and ample liquidity.
“Metals will be viewed as a play on emerging market growth and economic recovery in the developed world. Volatility, though, will remain a feature in coming weeks amid next week’s commodity index rebalancing and Chinese New Year holidays at the end of the month.”
For base metals, his average 2011 forecasts are copper, $9,750 a metric ton; aluminum, $2,575; nickel, $24,500; zinc, $2,475; lead, $2,525; and tin, $27,500. All are higher than the average for 2010.
