London 18/09/2012 - Base metals were stuck in consolidation mode on Tuesday morning, giving back some of last week’s gains when QE3 euphoria eased and a lack of fresh fund purchasing resulted in profit-taking in overbought conditions.
A softer euro also weighed on prices, dropping below 1.31 against the dollar to 1.3064, after two-year Spanish bond yields rose today.
“Expect this week to see more consolidation in an effort to wear off the overbought situation, as well as to test the resolve of the weak longs,” said RBC Capital Markets.
On Thursday the US announced it would implement a third round of quantitative easing (QE3), which sent metal prices soaring towards the close of the week. But market participants have since had time to reflect and sentiment has turned more cautious, in particular concerning demand from China - the leading metal consumer.
Although China announced a fresh round of infrastructure spending, which would boost metals demand, FastMarkets analyst William Adams said there are concerns that the Chinese may be able to meet the additional requirements from stockpiles that have built up over the recent months and years.
Meanwhile, a report published on Monday by the People's Bank of China indicated that the country was now favouring money market tools to manage growth rather than quantitative mechanisms.
Datawise, ZEW economic sentiment was better than expected but had little impact on the market. September German ZEW economic sentiment for September beat the expected -19.2 at -18.2 while ZEW economic sentiment for the eurozone as a whole at -3.58 was well above the forecast -16.3.
Further data releases scheduled for Tuesday include the second-quarter US current account balance, July US TIC Long-Term Purchases, and the September US NAHB Housing Market Index.
ALL METALS LOWER
Copper was $72.75 lower at $8,229.25 per tonne, while inventories declined for the second consecutive day, losing 2,775 tonnes to 213,925 tonnes; however, cancelled warrants at 43,225 tonnes were down 2,525 tonnes.
“Copper prices dropped for a second day as some investors closed positions to lock in profits following the rally last week and on concerns China may delay monetary easing following consumer prices increase in Aug, the first one in five months,” Fairfax' John Meyer said
Aluminium at $2,148 was down $19 on the previous day’s close and looks susceptible to further declines in overbought conditions. Stocks leapt after a huge 62,775-tonne increase in Detroit, taking total tonnage in this location to 1,487,175 tonnes. A backwardation in the sensitive 'TOM/next' (tomorrow/next day) spread, currently at $10.00/11.00, is probably responsible for the increase.
“A large delivery [in-warehouse] was expected around the September date but I don't think people expected it to be so big," a trader said. “I personally expected a figure closer to 30,000 tonnes.”
Inventories at Vlissingen, which in the past few weeks looked set to take over Detroit as the largest holder of aluminium stocks, declined 3,000 tonnes to 1,266,900 tonnes. Rotterdam continued its trend of steady 3,000-tonne-per-day increases, with stocks here now standing at 576,800 tonnes. Cancelled warrants were down 35,025 tonnes, with Detroit down 30,650 tonnes at 629,250 tonnes.
Zinc at $2,071.75 was down $17.25 despite a 2,350-tonne drop in stocks to 919,900 tonnes. Cancelled warrants jumped 98,750 tonnes to 217,800 tonnes, a fresh record high, with New Orleans leaping to 177,775 tonnes or 82 percent of all cancelled warrants.
Nickel, which was the star performer yesterday, hitting the highest since April 30 at $18,236, has struggled this morning. It dropped back below $18,000 to $17,919, a $301 loss. Stocks were marginally lower at 119,982 tonnes and cancelled warrants dipped 204 tonnes to 12,288 tonnes.
Lead dropped $16.75 to $2,240.25. Stocks were also lower, falling 2,350 tonnes to 288,550 tonnes, the lowest since April 15, 2011. Cancelled warrants were down 2,500 tonnes to 104,350 tonnes. Tin at $21,200 was $375 lower, with stocks unchanged at 11,955 tonnes.
Steel remains soft at $325/355 while inventories were stagnant. In the minor metals, cobalt was last indicated at $28,000/28,500 after four tonnes changed hands while molybdenum was neglected.
(Editing by Mark Shaw)