spi got sold off, page-9

base metals party on Is there no stopping copper?
11/04/06

There seems no stopping copper with the rally being fuelled on a high octane mixture of supply concerns, fund buying and roaring momentum. Supply concerns seem to be coming from all directions, from ongoing strikes, geopolitical concerns in various producing countries and even concerns over potential shortages of water in producing countries, not to mention the base metals’ adoption as a substitute currency vs the dollar. With so many factors driving the markets you have to ask whether things have indeed changed that much or is the situation running ahead of itself. Although there is little doubt that fundamentals are tight there seems an awful lot of hype in the market and with prices knocking on $6000 ($5965 on lates), the whole complex looks over cooked and in need of a reality check.

One of the most difficult factors to understand is the apparent low level of producer selling, although hedging has become unpopular with a lot of shareholders, which was largely behind the move by gold producers to dehedge in recent years, and which maybe affecting producers of other metals, it seems strange that producers are not trying harder to take some of the steam out of the market to help consumers. Aluminium producers in the past have voiced their desire to keep aluminium prices from rising too high (perhaps this is why aluminium is lagging behind). But with producers relatively un-hedged and funds long, there seems a lot of potential sellers. Even if the bull market is not about to end, a meaningful correction is going to be an ongoing high risk.

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For further information please contact:

William Adams
Metals analyst, BaseMetals.com
[email protected]