Analyst Ed Meir looks at what is moving the metal markets on
Wednesday May 2.
Copper and General Commentary:
higher in light trading on Tuesday, buoyed mainly by the April
ISM number out of the US, which was a total upside surprise
given the spate of weaker regional readings released over the
The number came in at 54.8, about 1.8 points above estimates
and clocking in at its fastest pace in almost a year. Stronger
auto production was a key factor behind the increase. Last
quarter for example, cars sold at their fastest pace in four
years, and although the pace moderated somewhat going into
April, sales were decent enough to persuade at least General
Motors to lift its full-year 2012 car and truck sales outlook
to 14-14.5 million, up from its previous range of 13.5-14
Right now, metals are lower across the board, with copper in
particular having a substantial decline on account of a
noticeable easing of the backwardations, poor data out of
Europe, and a just-released US private payroll report that came
in on the light side.
More importantly, we suspect the markets are still troubled by
what is going on in China. Although Tuesday's Chinese
purchasing managers' index showed a modest uptick, there were
issues within the readings, as discussed in Tuesday's column
In addition, the release of the HSBC PMI earlier in the day
(which focuses on smaller firms) came in at 49.3 in April, and
although it was up from 48.3 in March, the number remains mired
in contraction territory. The dichotomy between the two Chinese
readings represents the difficulty that smaller firms face in
finding financing, something that is much less of an issue for
the larger state-owned firms, whose activity is picked up more
cleanly in the larger "official" index.
Out of Europe, the eurozone's manufacturing sector slipped
further into the red in April after new orders dipped for an
eleventh straight month. In this regard, Markit's eurozone PMI
dropped to 45.9 from 47.7 in March, marking its lowest reading
since June 2009.
German manufacturing contracted for a second successive month
in April, as did France's sector. Italy's manufacturing
contracted for a ninth month, while Spanish activity declined
at its fastest pace since June 2009. In an article out earlier
this week, the Wall Street Journal reports that by its count,
nine European countries are now in recession.
In the European debt markets, Portugal sold about $2 billion of
Treasury bills at an auction earlier in the day. Although
yields pushed higher, the issue was placed in its entirety. The
average yield on one-year paper rose to 3.908% from 3.652% in
the previous auction. Portugal's ten-year bond yields are now
at 11%, and although they have risen from 10%, they are still
down from the all-time high of over 17% hit earlier this year.
The poor news out of Europe is weighing on the euro, which is
now trading at $1.3140, well off the recent high of $1.3284 hit
on Tuesday. This is another source of pressure on the markets,
as in addition to the weaker base metals complex, we are seeing
declines in both precious metals and energy. US stocks are
expected to open lower.
The ADP private payroll number out of the US came in at
119,000, the smallest gain since September of last year. March
factory orders come out later in the day, expected at -1.8%
following a 1.3% gain last month.
We don't have much to add to what we have been writing in
recent commentary. With the global growth outlook still very
patchy, it is hard to get too excited about upside prospects in
most commodities, base metals included.
Technically, we are now at $8,293 on copper, down $143. LME
stocks continue to decline, off another 2,600 tonnes overnight,
but the spreads are loosening. Cash/May is now at $60 back,
with tom/next at $20. May/June and June/July are at $14 and $8
back, respectively, about half the levels quoted on Tuesday.
The full cash to three's spread is around $87, and well off
levels seen earlier in the week. Index rolls start next week.
Ali is now at $2,106, down $16.
Zinc is at $2,031, down $22.
Lead is at $2,140, down $40.
Nickel is at $17,470, down $235.
Tin is at $22,100, down $450.