good buying opportunity

After the dust settles perhaps....

Zinc, Copper Plunge After WSJ Report of Losses at Red Kite Fund

By Millie Munshi and Pham-Duy Nguyen

Feb. 2 (Bloomberg) -- Zinc plunged the most in nine years and copper dropped to a 10-month low, fueled by a report of losses by metals-trading hedge fund Red Kite Management Ltd.

Red Kite's $1 billion fund lost 20 percent in the year to Jan. 24, the Wall Street Journal reported, citing an ``unofficial estimate'' the fund gave to one investor. Base metals have lost as much as 27 percent this year on rising global inventories and slowing global growth.

``The fear is that it's an Amaranth'' Advisers LLP, the hedge fund that lost $6.6 billion last year on natural-gas trades, said Michael Guido, director of hedge-fund marketing at Societe Genearle SA in New York. ``The problem is that we don't know how serious it is, and uncertainty breeds liquidation.''

Zinc for delivery in three months fell $310, or 9.1 percent, to $3,080 a metric on the London Metal Exchange, the biggest drop since July 1997. Copper for delivery in the three months fell $255, or 4.6 percent, to $5,345 a ton, after earlier reaching $5,250, the lowest since March 27. Aluminum, lead and tin also fell on the LME.

Signs of losses by hedge funds that had poured money into metals during last year's rally may prompt some speculators to reduce their holdings, accelerating the decline in prices, said Mo Ahmadzadeh, president of metals trading at Mitsui Bussan Commodities Ltd. in New York.

Hedge funds ``may be one sector that is feeling they've gotten more ahead of themselves in this market,'' Ahmadzadeh said. ``There's been a lot of willingness from the funds and the investment community to sell.''

190 Percent Gain

Red Kite's performance in January was the worst for any month in at least a year, the Wall Street Journal said today, citing an investor who saw the fund's results. One of Red Kite's funds last year gained more than 190 percent betting on metals, the newspaper reported.

David Lilley, who co-founded Red Kite with Michael Farmer and Oskar Lewnowski III, declined to comment when contacted by Bloomberg. Farmer wasn't available to comment on the Wall Street Journal report.

Not everyone is convinced the losses of one hedge fund signal metals are a bad investment.

``There's absolutely no reason for metals to fall this way,'' said Michael Metz, chief investment strategist at Oppenheimer Holdings Inc. in New York. ``The decline reflects the stress on one or more leveraged players. When the locals smell a catastrophe, they liquidate. In my opinion, it's a good time to buy.''

Zinc Slump

Zinc dropped as much as 12 percent to $2,990 a ton, and prices are down 27 percent this year. The metal, last year's second-biggest gainer behind nickel after jumping 126 percent, has posted five straight weeks of declines.

This year's slump has been spurred partly by rising inventories. Stockpiles monitored by the LME, the world's biggest metals bourse, have increased 8 percent since the end of December. LME-monitored stockpiles dropped 175 tons to 98,350 tons, the exchange said in a daily report today.

Supplies of zinc and other metals have risen following record prices last year. Zinifex Ltd., the world's second- largest zinc producer, said on Jan. 30 that the raw material used in producing the metal is more available than a year ago. China, the biggest producer and user of zinc, was a net exporter of refined metal in 2006 for the first time in three years, Beijing Antaike Information Development Co. said Jan. 26

Increased Production

Miners such as Canada's Lundin Mining Corp. have increased production of zinc concentrate, the raw material shipped to smelters, in a bid to capitalize on last year's prices. Zinc traded at a record $4,580 on Nov. 10.

Supply will surpass demand by 85,000 tons this year compared with a shortfall of 272,000 tons in 2006, Goldman Sachs Group Inc. said in a December report.

``The $3,400 level has been a crucial point and that being broken poses further downside risk for the metal,'' Peter Fertig, a commodity analyst with Dresdner Kleinwort in Frankfurt, said today by telephone.

Barclays Capital, the investment bank of Britain's third- largest lender, cut its average 2007 price forecast for the metal to $3,700 a ton, from $4,200, on Jan. 29.

http://www.bloomberg.com/apps/news?pid=20601087&sid=afabKwEmj_cU&refer=home




Sudden tumble in international mkt
DEEPA KRISHNAN

AGENCIES[ SUNDAY, FEBRUARY 04, 2007 03:13:38 AM]

MUMBAI: Zinc and copper prices crashed in the local futures market over the last two days, following the sudden tumble in the international market on news of losses by UK-based metals hedge fund Red Kite Management.

The February copper contract on MCX fell 4.5% from Thursday to close at Rs 238.65 a kg on Saturday, and February zinc fell 9.9% in the same period to close at Rs 140.05 per kg.

The open interest in both copper and zinc have increased above the average level in the last two days, with declining volumes and prices. This indicates that there is fresh selling in the market. As long as this trend continues the market would continue to be bearish.

The open interest in February copper rose from 23,926 lots on Thursday to 24,848 lots on Saturday. Volumes fell from 45,452 kg to 3,293 kg. The February zinc contract saw a rise in open interest from 3,121 lots to 3,851 lots, while volumes plunged to 8,845 kg on Saturday from 35,610 kg on Thursday.

On the London Metal Exchange (LME), the zinc contract deliverable in three months plunged to 9 1/2-year lows on Friday. Copper lost 4.6%, falling to the lowest level since March ‘06. While zinc fell $310, or 9.1%, to $3,080 a tonne copper fell $255 to $5,345 a tonne.

According to agency reports, the hedge fund Red Kite lost roughly 20% of its $1 bn fund since the beginning of the year up to January 24, ‘07.

Investors began to withdraw their money in panic causing the market to crash, as they feared a repeat of the Amaranth debacle. US-based hedge fund Amaranth Advisors had lost close to $6.6 bn in September ‘06 after poor bets on natural gas on Nymex.

According to Mape Admisi Commodities Research, there has been a 16% increase in metal stockpiles in LME in January, and 18% increase in December. These are the highest levels of inventories since 2004.

Base metals as a whole have lost over 27% since the beginning of the year, due to the rising inventory, and slower growth in US.Not everyone is convinced the losses of one hedge fund signal metals are a bad investment.``There's absolutely no reason for metals to fall this way,'' said Michael Metz, chief investment strategist at Oppenheimer Holdings in New York. ``The decline reflects the stress on one or more leveraged players. When the locals smell a catastrophe, they liquidate. In my opinion, it's a good time to buy.''

Zinc dropped as much as 12% to $2,990 a tonne, and prices are down 27% this year. The metal, last year's second-biggest gainer behind nickel after jumping 126%, has posted five straight weeks of declines.


http://economictimes.indiatimes.com/Sudden_tumble_in_international_mkt/articleshow/1559296.cms