20/07/2005 12:00:00 Base metals rebound on further strike news, copper leads, nickel lags
BaseMetals.com Report
The metals moved higher on Tuesday supported by news of further supply disruptions at copper, zinc and lead plants. Zambian miners at KCM look to have walked out again, the Olympic Dam copper mine had to be closed after an underground explosion and Teck/Cominco’s Trail smelter has stopped as the unions went on strike. In addition, a recent report that small tin smelters in Indonesia had cut as much as 75% of their production has also stopped the tin price decline - for the moment at least. On the demand side China’s Q2 GDP rose 9.5% better than the expected 9.2% and above Q1 growth of 9.4%, which suggests China is still growing comfortably. That said much of this growth is export led so China’s economy should not be viewed in isolation.
Technically the recent strength combined with yesterday’s rebounds make the metals look quite positive with many metals putting in bullish outside days on the charts. Lead and zinc’s outside days are no doubt due to the strike at Trail, which produces some 296,000mt of zinc a year and 84,000mt of lead. With high energy prices the company may opt to sell its energy supply which could lead to a prolonged strike. Copper’s action on the charts looks impressive as since 1st July buying has been coming in at ever higher levels, which could force a rechallange of recent highs at $3411 and $3435. Aluminium seems to have put in a false break lower in early July and is now rebounding. Are the funds expecting higher energy prices and changes in China’s tax policy, regarding toll smelting, to hit aluminium production? Since the July lows aluminium has bounced $169/mt, some 10%. Although near term there may be another rush to export aluminium before the changes are implemented, the funds may be looking further ahead and therefore are interested in buying at these relatively low prices. The metal that is still looking the weakest on the chart is nickel. The recent weakness could be a false break lower, as was seen in aluminium, although with Chinese steel production rising faster than demand, steel may still have to undergo further consolidation, which could keep the dampeners on nickel demand.
Today sees the latest EIA petroleum status report, stocks may have been built up ahead of the hurricane season. All ears however are likely to be on Greenspan’s comments about the economy and monetary policy when he speaks to the House Financial Services Committee. Overall on the metals, various disruptions may lead to further gains, but overall the higher prices are expected to attract producer selling, so expect the volatility to remain in force.
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For further information please contact:
William Adams Metals analyst, BaseMetals.com [email protected] http://www.basemetals.com
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