Analyst Ed Meir looks at what is moving the metal markets on
Friday June 15.
Copper and General Commentary:
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
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
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.