London 13/02/2013 - Base metals enjoyed an uptick in sentiment on Wednesday, with all in positive territory and zinc hitting a 17-month high.
Volumes remain thin, however - although some Asian countries such as Singapore have returned from their lunar New Year celebrations, China remains absent for the lunar New Year holidays.
“The upswing is continuing this morning,” Commerzbank said in a note. “Apparently the [zinc] market is becoming more and more convinced that the supply surplus on the global zinc market will be further reduced in 2013 and 2014 in view of the fact that a series of large mines is to be shut down by 2016.”
The euro strengthened yesterday after positive small business optimism numbers were released. This theme continued into this morning - the single currency was last at 1.3482 against the dollar after regaining the psychologically significant 1.345 level while eurozone industrial production growth for December at 0.7 percent beat expectations of 1.3 percent.
But Germany’s WPI for January came in at 0.3 percent, undershooting the forecast 0.4 percent.
Still, the threat of a currency war continues to dominate sentiment. Germany and France have opposing views on the strength of the euro - French finance minister Pierre Moscovici warned that a strong euro could damage Europe's growth prospects, prompting Bundesbank president Jens Weidmann to respond that the euro was not overvalued and that a weak euro would create inflation risks.
At a press conference on Tuesday, European Central Bank president Mario Draghi said that comments about rate policy were “inappropriate if they are meant to instruct the ECB to achieve a certain exchange rate”.
“Given a pick-up in political uncertainty in Europe and the upcoming potential spending cuts in the US, we would not be surprised if some profit-taking unfolds [in the base metals],” FastMarkets analyst William Adams said.
“With prices… near recent and multi-month highs, there is likely to be producer selling up in this area, which might well weigh on prices, especially if investment money has already lifted prices in the past few months," he added.
A slew of data from the US is due later, which could provide some price direction, including core retail sales, retail sales and import prices.
In other news, two copper fabricators in the US have reportedly filed a complaint against the approval of JP Morgan’s physically backed copper-backed exchange-traded fund (ETF).
“The companies fear that the market will be tightened as a result of financial investors, which may spark sharp rises in copper prices,” said Commerzbank.
ZINC RALLIES TO 17-MTH HIGH, COPPER INCHES HIGHER
Zinc hit its highest since the week of September 5, 2011, at $2,230 per tonne and was last at $2,220, still up $10 on the Tuesday's close. There was no change in inventories - stocks held at 1,188,100 tonnes and cancelled warrants - metal booked for removal - were steady at 649,625 tonnes.
“Zinc even managed to break its 2012 high and will likely see fresh momentum buyers in the market above the coming days,” RBC Capital Markets said.
Although there is talk that of increasing tightness in zinc, data from the International Lead and Zinc Study Group suggests that supply growth will exceed demand growth this year.
“The very high zinc stocks in the warehouses of the LME, which still total 1.19 million tonnes despite the latest inventory reduction, also argue against any tightness on the zinc market. In our opinion, the latest increase in the price of zinc seems exaggerated and not entirely justifiable from a fundamental point of view,” Commerzbank said.
Copper at $8,269 was up $33 after stocks fell a net 925 tonnes to 398,925 tonnes and cancelled warrants rose 200 tonnes to 31,475 tonnes. Still, the market is subdued - fewer than 1,900 lots have changed hands on Select so far today.
Aluminium at $2,135 was $17 higher, shrugging off a 4,775-tonne inventory rise to 5,147,225 tonnes and an 8,300-tonne drop in cancelled warrants to 1,985,550 tonnes. Vlissingen inventories rose 10,075 tonnes to 1,527,475 tonnes.
Nickel was $75 higher at $18,440 after stocks halted their five-day increase, dropping 210 tonnes to 153,912 tonnes, and cancelled warrants rose 486 tonnes to 24,912 tonnes.
Lead was last at $2,437, a $23 rise - stocks and cancelled warrants both fell 275 tonnes to 287,350 tonnes and 152,375 tonnes respectively.
Tin touched $25,049 earlier but has since stepped back to $24,900, still up $25. Stocks and cancelled warrants were steady at 13,350 tonnes and 2,215 tonnes respectively.
Steel was last at $300/340, with stocks unchanged for the 23rd consecutive day. Cobalt was quoted at $25,000/26,420 but molybdenum was neglected.
(Editing by Mark Shaw)