London 26/10/2011 - Base metals traded sideways during early Wednesday LME trading, as uncertainty about the crucial EU leaders’ summit, which starts later today, resulted in a nervous market.
Activity and price swings are likely to hinge throughout the day on developments ahead of the EU governmental heads meeting. Optimism that a credible agreement on tackling the eurozone debt crisis and bank recapitalisation has been behind this week's price gains - copper has climbed over 16.5 percent since last Thursday.
However, financial markets remain highly vulnerable to possible adverse news - on Tuesday a sharp sell-off was triggered by the cancellation of a pre-summit EU finance ministers meeting.
“Yesterday's market reaction to the cancellation of the meeting of EU finance ministers served to show just how fragile the price rally of past days is," broker Commerzbank said.
"Losses of up to 3 percent within a very short space of time have only this morning been recovered in part," it added. "Trading is likely to be under the spell of the EU summit today. We see more downside than upside risks though.”
COPPER STOCKS UNDER PRESSURE
Copper net warehouse stocks continued to dwindle, dropping a further 1,725 tonnes to 437,425 tonnes, the lowest since March 23. Cancelled warrants however have tailed off, dropping 2,125 tonnes to 62,750 tonnes.
Copper prices, while up $220 on the previous session at $7,745 per tonne, came off the intra-day high of $7,785, despite the decrease in stocks and reports that major producer Freeport McMoRan had declared force majeure on concentrate sales agreements from its strike-hit Indonesian Grasberg mine.
There have been reports that due to the low prices and a drop in treatment and refining charges, Chinese copper smelters have slowed the rate of refined production.
“Personally, these rumours have little substance. The fact is that the biggest driver of copper prices is China and they are still consuming,” said a source. “Presently, the global economy is uncertain but that that doesn't mean that China will stop consuming copper for domestic purposes hugely.”
Zinc stocks fell a further 2,225 tonnes, taking total inventory to 785,500 tonnes, the lowest since April 18. Cancelled warrants continued to rise, increasing 550 tonnes to 80,500 tonnes. At $1,882, the metal was up $40.
Aluminium prices increased $13.50 to $2237.50. Inventories at 4,557,000 were down 1,850 tonnes, while cancelled warrants were up 3,100 tonnes to 218,200 tonnes. Spreads remain tight with Dec/Jan showing a backwardation of $1.00/2.00.
Nickel was up $150 to $19,900. Stocks were down 240 tonnes to 87,588 tonnes and cancelled warrants at 6,252 tonnes were down 192 tonnes. Lead was up 325 tonnes to 388,475 tonnes, cancelled warrants increased 150 tonnes to 20,525 tonnes and business at $1,983 was up $22.
Tin bucked the upward trend and was down on yesterday’s close by $150 at $22,100, still some way off the $25,000 Indonesian tin producers are requesting to continue operations. Inventories saw a slight increase of 65 tonnes to 16,590 tonnes, while cancelled warrants fell 810 tonnes to 1,845 tonnes.
Steel at $525/545 increased $5, cobalt was quoted at $29,000/42,500 and molybdenum was bid at $26,250.
(Additional reporting Martin Hayes)