Metal prices fell yesterday, although a late-day rally in the US stock market helped the complex pare its losses. The Dow tacked on another 95 points in the last two hours of trading, as participants did not seem to get too rattled by the various macro numbers which, on balance, we thought were biased mostly to the negative side. US March housing starts and building permits, for example, came in slightly worse than expected, ending a string of modest improvements noted in prior readings. On the US employment front, although the latest weekly initial claims readings showed a decline this past week to 53,000 to 610,000 (well below the consensus of 660,000), continuing claims rose 172,000 to a record 6.022 million. What this means is that the pace of layoffs is slowing, but that it is not getting any easier to find a job. Somewhat more positive, was the April Philadelphia Fed regional economic survey, where the index fell less than expected, while the six-month outlook for general business activity actually rose to 36.2 from 14.5, the fourth consecutive monthly rise.
Metal prices are slightly higher as of this writing, but not by much. Another 5500 MT fall in LME copper stocks has not done much to revive sentiment today, as Shanghai weekly inventories ticked higher. For that matter, aluminum inventories were also up, while zinc stocks fell modestly. (See our table above).
For the time being, metals will be driven mainly by the actions of the SRB and the trend in the US equity markets. The SRB continues to buy metal, although how much longer it does so remains the key question. Chinese research group Antiake said today that it expects the government to buy 1,000,000 tons of aluminum, 600,000 tons of lead, and 400,000 tons of copper and zinc each, spread out over the next three years. (The copper number is separate from the 300,000 tons that the Chinese have already purchased for stockpiling arrangements). In our view, these moves in effect are extending a lifeline to local producers by artificially raising prices and keeping them in production. Whether the scheme succeeds or not depends very much on whether Chinese local demand and Western export demand picks up, enabling the government to “hand over the reigns” so to speak, and replace its own buying with private demand. Taking somewhat of an opposite tack, an article we came across in the Daily Telegraph (and referenced in the link in our attachment), argues that the Chinese are embarking on a concerted and prolonged effort to diversify their dollar holdings away from currencies and into metals. It makes for interesting reading, but we suspect the dollar amounts at stake are simply too huge, ($2 trillion of reserves), to warrant an even partial shift out of paper assets.
It will be light today on the US macro front, with only Michigan sentiment readings due out (significantly, expected at 58.5, higher than last month). Oil markets are slightly lower, while US stocks are expected to open flat as of this writing, as participants digest the latest earnings reports from Citibank and GE. Citibank ended a five-quarter losing streak by posting a $1.6 billion profit largely on gains from an accounting change, while GE’s Q1 profit fell by 35%, although this was somewhat less than expected.
Looking into next week, most markets could struggle, as we get the sense that they buying momentum has stalled somewhat. This is due to the fact that the macro indicators out of the US have been coming in somewhat worse than expected this past week. Should this continue into next week, some of the buying enthusiasm fueled recently by the notion that the economy may have bottomed out, could reverse.
In addition, we expect most markets to “hunker down” in advance of the Federal Reserve stress test results, now expected to come out on May 4th. Procedures on releasing information about specific banks, as well as what the government will say about each one, are still under discussion. Although the goal of the stress tests is to get a better handle on how banks will fare if the recession intensifies, policy makers have their work cut out for them. On the one hand, they must be able to identify the weaker banks without causing a further loss of confidence in them. However, glossing over their problems is not advisable either, as it will send the wrong signal to the markets. In effect, the government has parachuted itself into being an investor/analyst on the country’s banking system, but if it does not discharge its responsibilities delicately, it runs the risk of setting off alarm bells that could unnerve both the equity and commodity markets.
Out of China, we got latest production data for the country’s domestic metals industry (tabulated below). We note only modest changes in the month-to-month readings for refined copper and aluminum, but zinc, lead, and tin, all show impressive gains
March yr/yr Feb mo/mo Jan-March yr/yr
pct pct pct
Refined Copper 319,400 5.2 320,000 -0.2 921,900 8.7
Aluminium 902,300 -16.4 894,000 0.9 2,657,600 -14.1
Alumina 1,674,000 -7.6 1,719,900 -2.7 4,916,400 -7.8
Zinc 344,200 8.2 264,600 30.1 851,300 -3.1
Lead 335,200 45.7 204,500 63.9 741,700 23.9
Nickel 16,063 10.2 17,073 -5.9 51,822 37.1
Tin 10,614 -5.9 4,530 134.3 21,314 -29.2
In concentrate:
Copper 79,900 17.3 70,800 12.9 201,800 10.4
Zinc 217,800 -5.4 132,400 64.5 460,100 -15.6
Lead 107,600 19.2 62,200 73.0 224,500 7.1
Tin 4,300 30.3 3,800 13.2 14,500 26.1 (Source:Reuters)
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COPPER SUPPORT: $3840 / RESISTANCE: $5000
pct pct pct
Refined Copper 319,400 5.2 320,000 -0.2 921,900 8.7
Aluminium 902,300 -16.4 894,000 0.9 2,657,600 -14.1
Alumina 1,674,000 -7.6 1,719,900 -2.7 4,916,400 -7.8
Zinc 344,200 8.2 264,600 30.1 851,300 -3.1
Lead 335,200 45.7 204,500 63.9 741,700 23.9
Nickel 16,063 10.2 17,073 -5.9 51,822 37.1
Tin 10,614 -5.9 4,530 134.3 21,314 -29.2
In concentrate:
Copper 79,900 17.3 70,800 12.9 201,800 10.4
Zinc 217,800 -5.4 132,400 64.5 460,100 -15.6
Lead 107,600 19.2 62,200 73.0 224,500 7.1
Tin 4,300 30.3 3,800 13.2 14,500 26.1 (Source:Reuters)
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COPPER SUPPORT: $3840 / RESISTANCE: $5000
We are at $4738 on copper, up $9, but once again, prices are trapped within a very narrow trading range. A decline in LME stocks overnight has been somewhat offset by a weaker Shanghai session brought on partly by rising stocks.
* China's output of refined copper fell by 0.2% percent on the month in March as we note from our table, coming off a three-month high in February. Tight supply of scrap and weak demand discouraged smelters from running at full rates. The country produced 319,400 tons of refined copper in March, up 5.2% from a year earlier
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ALUMINUM SUPPORT: $1450 / RESISTANCE: $1600
* China's output of refined copper fell by 0.2% percent on the month in March as we note from our table, coming off a three-month high in February. Tight supply of scrap and weak demand discouraged smelters from running at full rates. The country produced 319,400 tons of refined copper in March, up 5.2% from a year earlier
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ALUMINUM SUPPORT: $1450 / RESISTANCE: $1600
We are now at $1482, unchanged, and not doing much of anything today, with a $30 trading range in place. Ali has given up much of its recent gains, and is arguably the weakest metal in the complex on account of its huge inventory overhang.
* Bloomberg reported yesterday that United Co. Rusal, Russia’s biggest aluminum producer, said it’s prepared to cut 500,000 metric tons of output at existing plants to enable construction to resume at two smelters in Siberia.
* Ormet said Thursday that it began legal action against Glencore to enforce its tolling agreement with the company. Ormet filed an injunction with the US courts to prevent interruption of alumina deliveries from Glencore as required under their tolling agreement, and said that with Glencore breaking its contractual obligations the company could be forced to shut down operations.
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ZINC SUPPORT: $1367 / RESISTANCE: $1525
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ZINC SUPPORT: $1367 / RESISTANCE: $1525
We are at $1547 on zinc, up $50, and looking very steady on the charts. We are looking to see if key resistance at $1525 will be taken out on a two-day closing basis, which would set up a further advance. However, if the rest of the markets struggle next week, as we suspect they might, zinc's advance toward $1600 will likely be postponed.
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LEAD SUPPORT: $1300 / RESISTANCE: $1650
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LEAD SUPPORT: $1300 / RESISTANCE: $1650
We are at $1522 on lead, up $18, and recovering nicely from a $1470 low.
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NICKEL SUPPORT: $9750 / RESISTANCE: $13,500
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NICKEL SUPPORT: $9750 / RESISTANCE: $13,500
Nickel is at $12,475, up $25; two days of closes above $12,100 suggests that we could push higher from here, with our new upside resistance target now at $13,500.
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TIN SUPPORT: $10200 / RESISTANCE: $12500
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TIN SUPPORT: $10200 / RESISTANCE: $12500
We are at $12,100 on tin, up $550, with tin being the strongest metal in the group so far today. We look for the current advance to extend to $12,500.
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