Analyst Ed Meir looks at what is moving the metal markets on Friday June 15.
Copper and General Commentary:
Metals finished mixed on Thursday, with copper prices inching forward, although aluminium remains caught in a slow drift lower. We are seeing the same divergence again right now, with copper and the rest of the group pushing higher, while aluminium continues to struggle, now bouncing around key support at $1,950.
Part of why aluminium is behaving the way it is may have to do with the fact that despite prices crashing through the $2,000 mark, there are no announcements regarding fresh production cutbacks. This is especially true of China, where year-to-date production is up some 10% through May and now likely running ahead of demand given the slow-down in the Chinese economy. Moreover, with local Chinese aluminium prices hovering around $2,500, there seems to be little incentive to cut back as, unlike in the West, producers still remain profitable.
Additionally, there may be growing unease about aluminium stockpiles locked up in financing deals. Although there seems little indication that these deals could be derailed given the current rate environment, there is some concern that that the LME may have to address the issue more forcefully given the lengthy aluminium queues that are now impacting the load-out rates in other metals.
Another cloud hanging over the financing program is whether the Fed will force the major banks to divest their warehouse holdings.
We have to see how all this plays out in the months ahead, but with the possibility of up to 8 million tons of aluminium “locked up”, there is always the chance that the metal becomes “unlocked” under the right circumstances.
Of course, as we noted in Thursday’s note, metals are trading on anything but fundamentals these days, and this will be especially true this weekend when all eyes will be on the Greek elections. We are expecting the Greek pro-bailout parties to prevail on Monday, in which case we could see multi-market rallies set in, but how much staying power such a move will have remains to be seen.
On the other hand, should the elections bring on a leftist victory, we could see another downward spiral set in, which is why G20 leaders said on Thursday that they are ready to authorise massive liquidity injections in order to head off any market disruptions or credit seizures. World leaders are going to be gathering in Los Cabos, Mexico, on Monday and Tuesday, accompanied by their finance ministers.
In other news, the Hong Kong Exchanges & Clearing said that it agreed to acquire the London Metal Exchange for £1.388 billion. The offer will be financed with cash and £1.1 billion in bank loans. The offer must now be approved by the UK’s Financial Services Authority and the full LME board, as well as accompanying shareholder votes. The acquisition is expected to be completed in the fourth quarter. HKEx said the acquisition will help it meet a key strategic priority of expanding beyond equities into additional asset classes.
In other markets, energy prices are up by about $0.40/barrel, while gold and silver are up by $5 per oz and $0.21 per oz, respectively. The euro is holding steady at $1.2610, while US stocks are called to open higher. Dow futures are pointing to a 45 point opening gain following an impressive 155 point advance on Thursday on increasing talk that the Fed may unveil another easing program at its FOMC meeting next week.
Technically, we are now at $7,486 on copper, up $67, and inching higher over the last few days. LME stocks were up a sizable 4,375 tonnes overnight and have increased by roughly 20,000 tonnes over the last few weeks. The recent intraday low of $7,233 is support for now, while $7,600 is next resistance
Ali is now at $1,950, down $4. If we break decisively below the $1,950-$1,955 mark, there is little in the way of support on the charts until the low $1,800 mark.
Zinc is at $1,902, up $10. Support at $1,861 has yet to be breached apart from a brief intraday move lower on June 1.
Lead is at $1,926, up $6; next resistance seems to be around $1,965, with $1,980 above that. Support is at $1,885, the lower end of the trading range.
Nickel is at $16,660, up $24. The market has moved off its recent low of $15,980, but charts continue to look poor.
Tin is at $19,550, down $75. We seem to be range-bound in tin for the moment, with very quiet conditions in place.