London 18/04/2013 - Base metals came under considerable pressure in Thursday's premarket when spooked investors turned even more jaded about the strength of the global economy, while the mass sell-off that hit gold and silver markets at the start of the week continued to unsettle sentiment.
The bellwether copper contract has broken below the psychologically important $7,000 level - earlier it sank to its lowest since October 2011 at $6,800.
“It’s not a surprise to see copper crashing through $7,000 given the negative sentiment - bargain hunters will try their hand making for volatile conditions,” an LME trader said, suggesting that the metal has established a new range of $6,800-7,300.
The rest of the complex tracked copper lower, although several are now starting to creep back up to around yesterday's closing levels.
The latest economic newsflow has put the metals under further pressure - the International Monetary Fund revised its 2013 global growth estimate lower to 3.3 percent year-on-year from 3.5 percent previously, for example. The IMF also lowered its outlook on China's economic growth to 8.0 percent from 8.1 percent.
Wider macroeconomic moves have proved to be a drag recently. Mostly soft data from the US has been seen - Tuesday's housing figures were mixed. Also, China's forecast-missing GDP reading for the first quarter and continuing European debt concerns have further clouded the outlook for the quarter.
Still, many of the metals have retreated into their costs curves, which could prompt a reaction from producers in the form of supply cuts or project postponements, Commerzbank said, which could help prices to establish floors.
“The currently low prices are likely to form the basis for a tight supply situation in future, for most metal prices are already trading at below their production costs,” it said in a note on Thursday.
“It is thus unlikely that more supply will be placed on the market, and planned projects are likely to be postponed. Some mining producers will doubtless also scale back their production because they are no longer able to cover their costs. The market is currently ignoring this aspect, however,” it added.
Traders are also largely ignoring the declaration of force majeure by Kennecott Utah copper on cathode shipments from its Bingham Canyon mine. Owner Rio Tinto has cut this year’s production estimate by 100,000 tonnes from its original estimates due to last week's pit wall slide.
In data, Chinese foreign direct investment was as expected at 1.4 percent. Later today the US Philly Fed Manufacturing Index and CB Leading Index are due while FOMC member Sarah Bloom Raskin will be speaking.
COPPER SELL-OFF CONTINUES APACE
Copper was last at $6,983 per tonne, still down $97 or almost 1.4 percent on Wednesday’s close. A substantial 24,300 lots had changed hands on Select by 10:30 BST.
The $7,000 level was psychologically important for copper, RBC Capital Markets said - it is likely to be the tipping point for most discretionary traders to give up the fight for higher prices in the second quarter, join the bears and take it lower.
There has been a lot of activity in the options market, with many put options traded - as of Wednesday’s close, more than 11,000 had traded since Monday.
“There is talk it might have to do with Glencore taking over Xstrata as China has given their approval to the merger,” Triland said in a note. “This means Glencore taking over the hedging activities and could mean a different approach to this subject - also on the precious metals side.”
Stock movements offered no respite - there was a net 3,825-tonne increase to 612,350 tonnes due to arrivals in Busan, Johor and New Orleans and 3,225-tonne drop in cancelled warrants to 148,575 tonnes.
Aluminium at $1,895 was unchanged - the metal has yet to drop to the 30-month lows from the start of the week, finding support from technical covering and forward buying.
Stocks rose 6,100 tonnes to 5,194,575 tonnes, with the Vlissingen and Detroit totals increasing 4,500 tonnes and 4,375 tonnes respectively. Cancelled warrants fell 8,900 tonnes to 2,006,050 tonnes.
Nickel tumbled to its lowest since June 2009 at $15,180 and was last at $15,420, a $5 loss. Although inventories hit a record high of 169,386 tonnes at the end of last week, today is the fourth consecutive day of drawdowns - stocks now stand at 168,426 tonnes.
Zinc touched a new five-and-a-half month low at $1,816.50 before recovering somewhat to $1,866, still down $11. Stocks fell 4,500 tonnes to 168,426 tonnes and cancelled warrants rose 1,075 tonnes to 643,425 tonnes.
Sister metal lead was down $15 at $2,007 - it had also fallen to its lowest since October 26 at $1,980 earlier. Inventories were up 300 tonnes to 259,775 tonnes.
Tin slumped to $19,610, its softest since October 29, and was last at $20,250, a $150 loss. Cancelled warrants fell 35 tonnes to 2,790 tonnes.
Steel was last at $180/230 - there was a 65-tonne drawdown in inventories to 14,625 tonnes while cancelled warrants jumped 3,185 tonnes to 47,450 tonnes due to increases in Antwerp. In the minors, both cobalt and molybdenum were neglected.
(Editing by Mark Shaw)