AFP: Base metals complex recovers on better demand
By Leon Westgate
The base metals all came under sustained and heavy pressure on Tuesday. The selling was mainly concentrated in the late morning and early afternoon, with prices stabilizing after lunchtime.
After a brief respite however, there was a further aggressive sell-of after the 5pm close, leaving the metals looking in poor shape. The selling was far from one-way however with solid 2-way interest resulting very good volumes building up, particularly in copper and zinc.
Good volumes have continued to be a feature this morning, particularly in copper where over 5,400 lots traded on LME Select by 9am UK time. Some Chinese arbitrage buying emerged overnight, helping copper rally ~$100 or so, however prices came back under pressure around 7am UK time as London started warming up. The red metal has found support around $7,300 however, and is off its morning lows, helped by a bit of dollar weakness creeping in.
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The trend is similar for the other base metals, with the complex recovering from the initial selling pressure, while aluminium is even trading back above yesterday’s closing levels. Overall however, in spite of the price falls, there doesn’t appear to be wholesale liquidation emerging.
Against the backdrop of index re-weightings this week, the monetary tightening measures announced by the Chinese have certainly served to confuse the market, leaving it in two minds about whether wait and see if there is further weakness to come, or whether to use the current dip in prices as an opportunity to build up a long position. Consequently, the markets are likely to remain volatile this week before taking stock of the situation over the weekend.
In other news, although SHFE Copper prices are coming under pressure in the wake of the PBOC’s monetary tightening measures, the arbitrage is open and spot copper premiums have continued to pick up.
Meanwhile, there are concerns starting to emerge over the potential impact that ice floes - reported to be the worst in 30 years - may have on the ports located in Northern China. While any impact will likely be felt primarily by the bulk commodities, any disruption may also boost sentiment towards the base metals.
