20 February 2007
Ebb and flow Much like a river the complex meandered through the day with the occasional flurry of activity as we reached a rapid or two. With China still off for the rest of the week there was no surprise that copper prices had eased lower waiting for a renewed upturn next week. Copper prices fell over 1.3% with little in the way of strong buying to support it. Zinc followed copper lower, falling by 1.91% as did aluminium (-1.40%) which has eased since the situation in Guinea improved and came under further pressure due to an increase in stocks and this was reflected in easing spreads. On the other hand nickel, lead and tin all maintained upward momentum making new highs with nickel and tin benefiting from stock outflows. Elsewhere oil and gold both ended the day lower as commodity wide fund selling manifested. The Wider world • European Union environment ministers formally agreed on Tuesday to set ambitious targets for reducing greenhouse gas emissions (Reuters). The new agreement will be positive for climate and will no doubt add further liquidity to the carbon emissions market. • The Bank of Japan begun a two day meeting to set interest rates. The meeting is being widely watched by the market and the view is very mixed. The country had recently witnessed positive growth figures although there has been tame price growth and thus many watchers are split as to the final outcome especially as the last BOJ vote was close. Elsewhere markets are keen to see the impact this decision will have on the carry trade where players are able to borrow cheaply in Japanese and apply the funds to higher yielding assets elsewhere. Should the interest rates rise and the currency appreciate this may dampen the economic viability of doing such trades negatively impacting liquidity. • Yesterday it was reported that Chile was struck by an earthquake with a magnitude of 5.5 centred in its largest mining province. No injuries or damage to homes were immediately reported, Chile's National Emergency Office said on its Web site. Mining companies in the province, also called Antofagasta, did not immediately report damage from the quake, Codelco said the quake wasn't felt near Chuquicamata, its biggest mine and Escondida, the worlds largest copper mine, had no damage from the quake, according to BHP Billiton Ltd (Platts). Aluminium • Aluminium closed the day at $2,744 down $39 from the previous close. • LME stocks increased by a large 8,250 tonnes this morning putting the light metal under pressure. In addition with more news stories like the one below emerging of bauxite activities slowly returning to normality in Guinee the market has been softer. • The Alumina Company of Guinea ACG), controlled by RUSAL, is restarting shipments of alumina from Conakry port as Guinea's strike-hit bauxite industry resumes activities. Following the re-launch of an anti-government general strike on Feb 12 -- the same day on which President Lansana Conte later declared martial law in the world's top bauxite exporter -- trains to and from ACG's plant at Fria had been halted. The Fria facility, located 160 km north of Conakry, has an annual production of around 700,000 tonnes off alumina. Until Tuesday, rail tracks to Conakry had been obstructed by rocks and debris placed on them by anti-Conte protesters. But the tough martial law measures, which include an evening and night curfew, have largely restored calm to the West African country after several weeks of unrest. Soldiers and police have been clearing blocked roads and rail lines. (Reuters) Copper • Copper closed the day at $5,725 down $80 from the previous close. • The red metal eased lower today as a lack of Asian buyers meant that the metal was under pressure from the outset with even a stock fall of 650 tonnes failing to galvanise the market. We commented in yesterday’s report that this was likely to be the outcome and we believe that this will continue to be the pattern for the rest of the week. However a lack of liquidity does encourage volatility, and at times copper become rather choppy providing a lack of clear direction for traders who prefer to take a wait and see approach. • Unions at Southern Copper’ 1.2 million tonne Ilo copper smelter today commented that they may strike later in the week. The unions expect to gain permission to strike from the labour Ministry tomorrow and will hold a meeting on the 22nd to set a date for the strike. Unions say the company has failed to discuss a new labour contract ahead of a February 28th deadline. Southern filed a legal motion to block the union's action because they say the current labour agreements are valid through May (Bloomberg). • The Energy and Mines Ministry released figures over the weekend showing that December copper output decreased 2% in December to 96,548 tonnes. However for the year, copper output rose 3.86% to 1,048,897 tonnes (Reuters). Nickel • Nickel closed the day at $39,850 up $1,000 from the previous close. • Nickel looks to be on target to reach the $40,000 level although volumes have been relatively lighter. A fall this morning of LME stocks was enough to provide futher impetus to nickel to make another hew high today, assisted by momentum buying. The cash to three moth spread ended the day at $3,100 back against a morning valuation of $2,805 back futher indicative of a tight market. Lead/Tin • Lead closed the day at $1,835 up $55 from the previous close while tin closed the day at $13,495 up $295 from the previous close. Tin certainly looks well supported and a push for the $14,000 level looks likely in the short term especially as stocks are now below the 10,000 tonne level. Lead on the other hand while benefiting from speculative buying in the short term may not have ability to maintain these levels in the longer term given the environmental concerns causing many to look for lead alternatives. Even in the solder manufacturing sector, tin had begun to replace lead and this we believe will be a continuing trend as environmental policy tightens, especially in Europe where legislation is already beginning to restrict its use. |
