Metals Market Update (20100108)

Metal prices eased on Thursday in their first significant correction in some time, as a round of profit-taking, a slightly stronger dollar, and an unexpected rise in three-month auction yields by the People's Bank of China, all contributed to the sell-off. Participants will now be looking for the US non-farm payroll number out later today to assess near-term direction. As we wrote earlier, we suspect the number could surprise to the upside (expectations are for a decline of 35,000 jobs), in which case the dollar could add to yesterday's gains and possibly pressure commodities somewhat lower. The greenback is now below $1.43, and already putting pressure on both metals and energy. Metals are also down on reports of more stock increases, with the big surprise coming from China where zinc stocks were up a massive 50,000 tons on the week.

There is also much talk that index rebalancing will start this week. The buzz is that copper could see its share in the indices scaled back given the massive returns it has generated in 2009. This is quite likely, as typically the commodities with the biggest gains are the ones that are pared back. Indeed, the Reuters-Jeffries CRB chart in our attachment shows copper's prominent position in the 2009 rankings, and from the looks of things, we suspect that some of the laggards, like grains and natural gas, will ones whose share may be lifted going forward.

In other news, Europe’s unemployment rate unexpectedly increased to 10% this past month, its highest level in more than 11 years. Out of Germany, the government reported that exports rose more than forecast in November increasing by 1.6% from October levels.
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COPPER SUPPORT: $7170 / RESISTANCE: $7796

Copper is at $7464, down $70, as LME stocks rose by another 3,150 tons overnight. Prices seem to be retracing away from their weekly intraday high of just under $7800, but the medium-term upchannel is still intact. The short-term upchannel, (i.e., the last few weeks), looks somewhat more suspect.
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ALUMINUM SUPPORT: $2120 / RESISTANCE: $2350

Ali is at $2286, down $24; we did not get our second-day close above $2350 resistance yesterday, and so we could stall here.

* Chalco will raise its alumina spot price to 3,000 yuan from 2,800 yuan per ton, the company said in a statement on its website. The 7.1% price rise takes effect from today and follows a 5.7% increase that took effect on Dec 31.

* Metal Bulletin reports that North American spot Midwest aluminum premiums continue to move upward, and have pushed to 43-month highs this week. Premiums are between 5.75 cents and 6.15 cents per pound, as fewer U.S. imports from Russia and Venezuela are contributing to a regional squueze. Additionally, some of our US trade clients tell us that demand for aluminum has also been moving higher over the last few weeks.
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ZINC SUPPORT: $2450 / RESISTANCE: $2736

Zinc is at $2544, down $63. Although we did get two closes above key resistance at $2600, the market is acting quite poorly, no doubt on account of the sharp rise in stocks in Shanghai stocks. We have consequently adjusted our trading bands accordingly, and now see a possible sell-off to $2450.
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LEAD SUPPORT: $2480 / RESISTANCE: $2690

We are $2550 on lead, down $49, and still looking constructive on the charts. The $2690 intraday high marks short-term resistance for now.

* Cold weather has been a major factor in spiking battery sales by some 80% versus last year’s levels at European auto parts retailer Kwik Fit. The company did not disclose the actual number of sales.
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NICKEL SUPPORT: $18,000 / RESISTANCE: $21,500

Nickel is at $18,150, down $305. Nickel never pushed beyond its trading range and prices now seem to be retracing back into the middle part of the range.
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TIN SUPPORT: $15,900 / RESISTANCE: $18,000

Tin is at $17,425, down $50 and quiet.

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Metals Market Update

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