anz sees modest recovery in base metal prices

It just keeps getting better... ;)

Australia's ANZ sees modest recovery in base metal prices

SYDNEY (Thomson Financial) - Australia and New Zealand Banking Corp Ltd (ANZ) said Wednesday that base metals may stage a mild recovery after being oversold last week on fears that the US had slipped into recession.

Despite the problems facing the world's largest economy, ANZ senior commodity strategist Mark Pervan said positive fundamentals remain in place with tight London Metal Exchange (LME) supplies and strong Chinese demand underpinning support.

Overnight copper spiked 3.0 percent to 8,213.00 US dollars a tonne, nickel jumped 3.5 percent to 29,360 dollars a tonne, zinc rose 2.6 percent to 2,295.50 dollars a tonne, aluminium rose 2.1 percent to 2,859.50 dollars a tonne and lead added 1.5 percent to 2,742 dollars a tonne.

The rises were on the back of bargain hunting after recent weakness as traders worried about the impact of a slowing US economy on demand.

Pervan warned that the mood was likely to remain cautious in light of the recent financial stress on Wall Street and early signs of a bottom in the US dollar.

"Zinc may be the best performer from a heavily sold position after a surprise fall in Chinese exports," Pervan said. The market expects the metal to rise due to the looming cancellation of Chinese export rebates in June.

"The latest monthly Chinese metal trade data (out Monday) looked strong, with stronger copper imports and lower aluminium and zinc exports in February," he said

Also, traders with long copper positions took profits after building positions for seven weeks with the net long copper position falling to 30,000 tonnes from 83,000 tonnes and short positions increasing for the first time in three weeks.

While in historical terms Pervan expects base metal prices to remain strong, he said prices are likely to be choppy to weaker in coming months, with sliding US economic and financial market conditions dictating sentiment.

"Further US rate cuts could put downward pressure on the US dollar although recent upward moves (in the currency) suggest much of the downside has been factored in," Pervan said.

He said metal supplies remain tight and should keep a high floor on prices while the recent correction in prices has lowered the risk of de-stocking by Chinese customers.

"In fact, the sharp rise in Shanghai copper stocks in the last two months suggest a lot of the de-stocking has already occurred," Pervan said.

Meanwhile, he said nickel could be the positive surprise on signs stainless steel order books in Europe and Asia were returning to normal levels after a drop off in demand in 2007.