London 22/10/2010 - Base metals withered during Friday morning LME trading apart from lead and zinc, failing to recover fully from their sharp Tuesday sell-off despite a softening dollar.
The US currency gave up its recent gains while markets await the results of this weekend’s G20 meeting.
Lead and zinc stole the spotlight, climbing to fresh 10-month highs of $2,519 and $2,525 per tonne respectively.
Zinc was supported by news that Zhen Zhongjin Lingnan Nonfemet, China’s third-largest zinc producer, closed its Shaoguan lead and zinc smelter in Guangdong completely on October 21 to meet with the provincial government's investigation on a toxic discharge of thallium.
But trading remains volatile and choppy, with sentiment remarkably lower than it was just seven days ago at the end of a very bullish LME Week.
"We expect more consolidation and, while in consolidation mode, there is an increased risk of deeper pull backs," William Adams of FastMarkets said. “But the market stance of buying dips is most probably going to dominate.”
Metals remain at the mercy of currency gyrations. After a very volatile week, the dollar traded at 1.3925 against the euro on Friday morning, as markets wait a second round of quantitative easing measures that may be as large as $500 billion to boost the stagnant US economy when the Federal Reserve meets on November 3.
Tuesday’s surprise rate rise announcement from China - it lifted its benchmark rate by 0.25 percent, its first increase since 2007 - sent metals tumbling
The move has sparked fears that demand from the world’s largest commodities consumer may be stifled. With a share of more than 40 percent, China is by far the largest consumer of base metals.
On Thursday, China announced that GDP growth slowed further to 9.6 percent in the third quarter of 2010, while the increase for the first nine months was 10.6 percent.
Inflation rose in September to 3.6 percent, reaching a 23-month high but, but was in line with forecasts. The CPI and PPI rose 3.6 percent and 4.3 percent respectively
Yesterday's slew of US data portrayed an economy stuck in limbo, reinforcing views that the Federal Reserve will ease monetary policy further next month to try to boost the recovery.
There is no major economic data out of the US today, although the start of the G20 meeting in Gyeongju, South Korea is likely to be watched closely as finance leaders try to curtail potential currency wars. The US, in particular, will attempt to build up pressure on China to let its currency appreciate.
“All that is all that needs to come from this meeting: an admonition that it is wholly and completely wrong for any nation to try to devalue its way to prosperity,” Dennis Gartman, author of the Gartman Letter, said.
STRONG CONSUMPTION SEEN ACROSS COMPLEX
Nickel traded at $23,365, up $90 from last night’s close, while stocks – at 125,670 tonnes - are their highest since mid-June of this year.
But inventories fell across most of the other metals, suggesting continued good demand
“LME inventories reaffirmed the picture of strengthening consumption as stockpiles fell across the board, with nickel being the exception,” Credit Suisse said.
Copper traded at $8,323, up $15, after teasing the $8,500-level earlier this week, while stocks fell to 368,825 – their lowest level since October 23, 2009.
The latest ICSG report that global copper consumption exceeded supply by approximately 24,000 tonnes in July on a seasonally adjusted basis. ISCG are normally relatively conservative in their estimates.
In mining news, union workers at the Collahuasi mine in Chile are expected to support a vote to strike next week for a new pay deal. The mine is controlled by a joint venture by Anglo American and Xstrata.
There is a considerable gulf to be negotiated between the two parties. The company has offered a 2.6-percent increase while the union is looking for an increase of 8-10 percent.
Zinc traded down $9 at $2,505, and lead fell $10 to $2,504, after hitting 10-month highs during early trade on Friday.
Aluminium traded at $2,355, after closing at $2,364 in yesterday’s session, while tin traded at $26,400, down $100, after trading as high as $27,050 in Thursday’s session.
Steel billet was indicated at $480/488, up from last night’s $465/470, while stocks fell to 56,355 tonnes, their lowest level since late July this year.
In the minor metals, cobalt and molybdenum were indicated at $36,800/$44,100 and $30,500/37,450.
(Additional reporting by Martin Hayes)