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Ardent Listener
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 Posted - 06/24/2009 : 21:15:23
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Chris Kelly and Michael Taylor
New York, London — Reuters, Wednesday, Jun. 24, 2009 04:37PM EDT
Copper (HG-FT225.05-1.70-0.75%) gave back a portion of its 5 per cent rally after the close Wednesday after the U.S. Federal Reserve said the economy was likely to remain weak for a time, compounding market concerns about sluggish demand prospects.
Copper for September delivery on the New York Mercantile Exchange's Comex division ended the session up 6.90 cents (U.S.) at $2.2810 a pound, but surrendered a portion of that gain to trade around $2.25 following the Fed policy statement.
The Federal Reserve held overnight interest rates in a zero to 0.25 per cent range – the level reached in December – and said the U.S. economic recession was easing.
“This was a Fed statement that really has little surprise and little change,” said Bill O'Neill, managing partner with Logic Advisors in Upper Saddle River, N.J.
“The markets are going to function on the factors that they have been focusing on. In the case of copper, it's certainly going to be China, as well as demand outside of China and also the currencies,” he added.
The Fed decision and accompanying policy statement drove the dollar higher against the euro, adding pressure to metals priced in the U.S. currency.
On the London Metal Exchange (LME), three-month copper jumped $250 to settle at $5,055 a tonne, but eased in after-hours business to around $5,015.
Base metals stabilized and moved higher overnight in response to a better economic forecast from the Organization for Economic Co-operation and Development.
The gains accelerated throughout the session on Wednesday, driven by a U.S. government report that showed durable goods orders unexpectedly rose in May.
“We jumped right after the data came out,” said Edward Meir, an analyst at MF Global on metal markets. “We need to see more evidence that things are ramping up on the growth side.”
A separate report showing sales of newly built U.S. single-family homes slip slightly in May failed to stem the bullish momentum.
But copper, used in power and construction, is down about 10 per cent since hitting an eight-month high of $5,388 a tonne in London and $2.4630 a pound in New York earlier this month. Those gains were based on Chinese buying for stockpiles, which shows signs of ending.
Some analysts think China's State Reserves Bureau could in fact be selling copper back into the domestic market. China is the world's largest consumer of copper, accounting for about 30 per cent of total demand.
News that a rebound in Japanese exports slowed in May as shipments to China deteriorated and U.S. demand remained weak also added to the gloomy outlook.
“We stick to our view that we will see a further correction for copper prices because Chinese buying is coming to an end,” said Barbara Lambrecht, an analyst at Commerzbank.
Stocks of copper in LME warehouses are at seven-month lows around 275,000 tonnes compared with levels around 500,000 tonnes earlier this month. Much of the difference has made its way to Chinese state reserves and consumer stockpiles.
Analysts say buying by China's SRB for the country's stockpiles is also a phenomenon in the aluminum (AL-FT0.75----%) market.
Material heading towards China is reflected in the cancelled warrants or material already earmarked for delivery, which jumped to above 158,000 tonnes on Tuesday from near 100,000 tonnes on Monday.
“Strategic buying by the SRB in China is supporting aluminum prices as are higher energy costs,” Ms. Lambrecht said.
Power is estimated to account for about one-third of aluminum smelting costs.
Also helping to shore up aluminum are worries about a nearby shortage as many companies with metal are using it as collateral to release cash tied up in stocks.
“As much as 75 per cent of total stocks [are] tied up in financing deals,” Calyon said in a note.
Aluminum ended at $1,660 a tonne from $1,605, while zinc rose 6 per cent to $1,611 from $1,519.
Nickel rose more than 6 per cent to a high of $15,530 a tonne against $14,610, as traders said the metal was tracking copper higher with additional support from fund buying. It closed at $15,500.
Lead gained to more than 5 per cent to $1,705 from $1,620, while tin closed $200 higher at $14,750.
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