London 08/10/2010 - Base metals ran out of luck on the LME on Friday, reversing course after a week of dramatic gains when traders took profits in the run-up to this afternoon’s closely watched US non-farm payrolls figures.
“Metals have run ahead of themselves,” William Adams, analyst at FastMarkets, said. “The markets looked overbought so a correction seems in order.”
The dollar, which briefly touched fresh eight-month lows of 1.4040 on Thursday, has been hammered - market players are betting that an aggressive push by the Federal Reserve to revive the US economy could drive up inflation.
Government bond markets have already priced in the effects of a return to emergency quantitative easing next month.
The US is not the only market facing currency pressures. On Thursday, Bank of England governor Mervyn King entered the debate about whether to loosen monetary policy, warning that a stronger pound could further weaken the UK recovery.
“Are the world’s government’s collectively debasing their currencies in rush? Yes,” Dennis Gartman, author of the Gartman Letter, said on Friday.
Former policy maker David Blanchflower said it was “likely” that the BoE will add 50 billion pounds to its stimulus plan in November in a New Statesman article published on Thursday.
On the European continent, however, European Central Bank president Jean-Claude Trichet is bucking the global push toward easier monetary policy, keeping the euro strong against a global basket of currencies.
China has returned to work after the Golden Week holiday, adding volume to the markets. But with LME Week set to kick off next Monday, caution has been in order as the industry’s usual players move away from their desks.
The focus for today is - of course - September’s non-farm payrolls report, with economists expecting zero job growth for September compared with a fall of 54,000 jobs in August.
While the labour market is certainly struggling as the US expansion continues, the August employment report was quite positive and the evidence from the employment situation reports over the last few months clearly suggests that a double-dip recession is unlikely.
BUMPY PATH AHEAD
“The driving force for all the metals is demand, which has been much stronger than the headline economic data suggests,” Barclays Capital said. “Despite encouraging fundamental signs, a high degree of uncertainty still surrounds the global economic outlook, and the path ahead is likely to prove bumpy, but the prospects for further price strength over the remainder of 2010 are promising.”
Copper, which hit a two-and-a-quarter-year high of $8,326 on Wednesday, traded at $8,116, up $16 from yesterday’s close. Copper stocks are at their lowest since October 29, 2009.
The red metal will hit $11,000 per tonne within the next 12 months, Goldman Sachs predicted this week
Nickel traded at $23,808, down $97, after hitting $25,200 on Wednesday, its highest level since early May.
The global nickel market will have an oversupply of 80,000 tonnes again next year, the International Nickel Study Group (INSG) estimates, due to a significant expansion of supply of almost 13 percent, while demand is set to rise merely seven percent.
“We had already said before that we will see greater supply on the global nickel market this year and next year especially, partly because new projects will start operations,” Commerzbank said.
“Market players are underestimating supply in our view,” it added. “Current inventories of around 123,000 tonnes on the LME are therefore unlikely to fall to any significant extent.”
Tin changed hands at $25,620, down $180 and retreating further for the all-time high hit earlier this week. Tin stocks are the lowest since May 7, 2009 and have halved from this year’s peak from February this year, during which time the price has risen 55 percent.
Aluminium traded up $20 at $2,350, while stocks fell 5,075 tonnes to 4,331,600 tonnes and cancelled warrants fell 5,975 tonnes to 231,500 tonnes. Aluminium stocks are down for the 17th day in a row to their lowest since June 2009.
Zinc traded down $18 at $2,255, while lead climbed $16 to $2,225. Steel billet was indicated at $445/458 after stocks fell for the 11th day in a row.
In the minors, cobalt was indicated at $36,800/39,000 while molybdenum was indicated at $30,500/37,500.
(Editing by Mark Shaw)