Friday June 8, 12:38 pm Eastern Time
LME copper, zinc bounce after sinking to new lows
(UPDATE: Updates with late bounce, closing LME prices paras 3-6)
By Jeremy Smith
LONDON, June 8 (Reuters) - Copper prices slid to a 14-month low on the London Metal Exchange (LME) on Friday as powerful hedge funds baled out of their long positions but the slump might be just what prices need for a recovery, analysts said.
The LME's benchmark three-months price tumbled to a trough of $1,639.50 a tonne in the second open outcry ring, its lowest since April 17 last year when it reached $1,634. But the complex staged a dramatic bounce just minutes from the evening kerb close on news from the world's second largest aluminium producer Alcan Inc (Toronto:AL.TO - news). Alcan said it would cut output at its Kitimat smelter in British Columbia due to low water levels to 50 percent of capacity starting the week of June 18.
Copper sank to as low as $1,637 during the afternoon rings but its late recovery on the back of the Alcan news saw it end the kerb at $1,642.50, still down by a hefty amount from its previous close of $1,675. Aluminium prices , more directly affected by the cutback, jerked higher within seconds and put on some $13 to push back over the psychological $1,500 level and end at $1,511, down $6 on the Thursday close. But the story was very different earlier in the day and analysts said the overridingly weak fundamental scenario was still unchanged, despite the late flurry of buying. The weakness blighting the base metals complex began before the open of the LME's morning rings with zinc , which hit a fresh seven-and-a-half-year low of $913 and dragged aluminium in its wake as it slipped below $1,500.
Zinc closed the kerb at $922, more than recouping the ground lost earlier in the day as it had ended Thursday's kerb at $921. ``It's further long liquidation, which started off in zinc and a lot of the stale longs who have been around in the market decided to bale out of a falling market,'' said Robin Bhar, metals analyst at Standard Bank London, speaking earlier. ``So that doesn't offer much hope in the sense of a recovery...and the summer slowdown factor is looming,'' he said. Earlier, traders had said copper might test $1,600 at some point before picking up and possibly sparking a repeat of this week's Asian bargain-hunting when prices flirted with erstwhile support at $1,650/60.
WEAK MACROECONOMIC PICTURE
On the fundamental side, a weak macroeconomic picture seen first in the U.S. and now in Europe, coupled with rising world copper stocks have underlined the fall in demand for copper. ``There has been a continued stream of bad economic data from Europe -- and without seeing any pick-up in the U.S.,'' said analyst Kevin Norrish at Barclays Capital. ``We were expecting something like this.''
``There are few fundamental reasons to persuade small technical funds not to go short,'' he said. ``But I think that this may be the turning point.'' Zinc, troubled by a lack of demand and overburdened with supply, sank to its lowest point since April 1994 earlier in the morning -- and promptly saw another wave of selling as the thin market left prices open to another attack by fund sellers.
One of the main problems with the zinc market at present is excessive metal supply and waning demand from the galvanising industry, one of zinc's key markets, analysts say. Standard Bank's Bhar said: ``It really depends now on what sort of consumer forward and spot buying is going to come in to the market at these levels.'' Aluminium may have slightly brighter prospects as it should derive some price support from smelter production cutbacks in Brazil due to the government's energy rationing programme. ``You've got the next two to three months with low activity with the summer shutdowns...one would hope we would move out of the summer into the fourth quarter where hope for recovery would begin to be seen,'' said Bhar. |
