base metals up across the board

Metals - Base metals up across the board as confidence returns on rate cut hopes
September 11, 2007: 09:38 AM EST


LONDON, Sep. 11, 2007 (Thomson Financial delivered by Newstex) -- Base metal prices rose across the complex in London as returning investor confidence on expectations of a rate cut by the US Federal Reserve allowed market players to refocus on commodity fundamentals, away from the turmoil fostered by the subprime mortgage crisis.

With equities up in London and predicted to open higher in the US, copper was freed to lead the charge this morning as a raft of bullish fundamental news saw prices push higher, dragging the rest of the complex in its wake.

Improving demand figures from China, the world's largest consumer of the red metal, supply threats out of Latin America, falling LME monitored inventories and a dollar riding close to all time lows against the euro, have all contributed to copper's push higher.

'Copper took the lead this morning,' said Alex Heath, head of base metals trading at RBC (NYSE:RY) Capital Markets. 'If you compare the Chinese import figures year on year, you'll see a large jump in what is normally a very quiet month. The country seems to be importing more than the market might have thought.

'The market has also priced in a rate cut. The bottom line here is that if rates are cut, the dollar will fall, which will support the metals.'
A weaker dollar makes metals traded in the US currency cheaper for holders of alternative foreign currencies.

At 2.02 pm, copper for three-month delivery was trading at 7,358 usd, against 7,162 usd at the close yesterday.

Data released overnight showed that Chinese imports of copper and copper products increased by 43 pct in the year to date, buoying market sentiment as the world's largest consumer of the red metal continues to grow.

While copper and semi-finished product imports fell month on month between August and July, down 7.2 pct to 191,876 tonnes from 206,830 tonnes, this decline had been anticipated by the market, reflecting massive imports in the early months of 2007.

Overall, the official customs data was regarded as reflecting strong Chinese demand by analysts, giving a boost to the market.

'We'd expect to see a rise in Chinese refined copper imports over the next couple of months,' said Barclays (NYSE:BCS) Capital analyst, Sudakshina Unnikrishnan. 'The strike due to start in Peru tomorrow and a small draw down in LME stocks is also supporting prices.'
In Peru, workers at Southern Copper's Ilo smelter and Cuajone and Toquepala mines are due to walk out tomorrow, unless an agreement with management over a new pay deal can be reached.

Grupo Mexico, Southern Copper's parent company, is already dealing with a strike at its giant Cananea copper mine.

Elsewhere, inventories at LME monitored warehouses declined by 325 tonnes, to 137,275 tonnes, lending support to prices.

Stronger equities, and higher prices across commodities, are also pushing prices up this morning.

'One thing that is supporting the market is the rebound in investor confidence, which has been a good indication recently for base metal prices,' said Calyon analyst, Michael Widmer.

Base metal prices have been caught up in the recent financial turmoil stemming from the US subprime mortgage debacle, faced with the twin dangers of funds exiting risky but profitable commodities positions to cover losses in tumbling equities, and the broader fear of a slowdown in the US economy dampening demand for metals.

In the current nervous economic conditions, market players will be watching Fed Chairman Ben Bernanke when he addresses an audience in Berlin at 4 pm London time today, to look for hints as to the likelihood and possible size of any rate cut decision.

'Undoubtedly, it will be Ben Bernanke's latest assessment of the state of play that will carry most weight with the investment community,' said Simon Derrick, currency strategist at Bank of New York Mellon.

Looking beyond today's gains, many analysts remain cautious amid the current market turmoil, warning that commodities and markets in general are not out of the woods yet.

'Base metals have moved higher in Asian and early London trading as equity markets have recovered,' said UBS (NYSE:UBS) analyst, John Reade. 'This strength appears to be driven by some dovish comments from Fed speakers overnight. With our view that there is more volatility to come, we suspect that these gains will be short-lived.'
In other metals traded on the LME, nickel traded up at 27,500 usd against 26,750 usd, while aluminium was up at 2,440 versus 2,425 usd at the close yesterday.

Elsewhere, zinc rose to 2,740 usd a tonne versus 2,704 usd, while lead prices were up at 2,985 usd a tonne against 2,870 usd. Tin rose to 15,175 usd from 14,725 usd a tonne at the close yesterday.

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