Copper buckling under inventories pressure
By Chris Flood
Published: January 2 2007 12:27 | Last updated: January 2 2007 18:14
ft.com
Copper made a weak start to the new year falling 3.3 per cent to $6,120 a tonne on Tuesday after a large rise of 7,775 tonnes in London Metal Exchange inventories.
Traders said the metal could be nearing a critical juncture because LME stocks were at 190,575 tonnes, the highest level since March 2004, and were a reflection of slowing demand and rising supply.
Copper prices fell by 16.5 per cent in the final quarter of last year as strike threats in Chile receded. This weakness has encouraged more short-term momentum traders, known as commodity trade advisers, to play the market from the short side. One trader said that copper risked “falling into a vacuum” if the price dipped below $6,000 a tonne.
Copper’s fall brought downward pressure for other base metals with aluminium off 0.6 per cent at $2,785.5 a tonne while tin eased 1.2 per cent to $11,375 a tonne.
An issue facing the market is the reweighting of the Dow Jones AIG commodity index, which has about $30bn in assets tracking it. The rebalancing could happen this week and is likely to have an impact on metals prices.
In December, Michael Widmer, at Calyon, estimated that the reweighting could result in the selling of nickel contracts worth 10.9 per cent of open interest and 6.4 per cent of zinc’s open interest contracts. (Open interest is the aggregate of all long and short positions). Zinc fell 2.2 per cent to $4,135 a tonne after a rise of 2,025 tonnes and nickel lost 2.6 per cent at $32,475 a tonne.
Weakness in the dollar and geo-political tensions helped gold prices after Tehran rejected the recent UN resolution to impose sanctions on Iran as invalid and illegal.
Mahmoud Ahmadinejad, Iranian president, threatened a “slap in the face” to the western powers who were bullying Iran over its nuclear programme.
Gold firmed up 0.6 per cent at $640.30 a troy ounce.
North-east America is expected to continue to have unseasonally mild weather, ensuring downward pressure on heating oil prices. Nymex February heating oil fell 1.1 cents to $1.6370 a gallon.
Dealing volumes for energy remained light with the New York Mercantile Exchange closed (except for electronic trading) in memory of former president Gerald Ford.
ICE February Brent slipped 46 cents to $60.40 a barrel while Nymex West Texas Intermediate fell 39 cents to $60.66 a barrel.
UK gas prices were under pressure after Belarus and Russia announced a deal on gas prices. UK natural gas for February delivery traded 1.02 pence lower at 31.20 pence per therm.
Copyright The Financial Times Limited 2007 |
