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Copper and zinc drop and could aluminium sell-off be happening?

Date: Wed, 13 Jul 2011 | Author: Paul Sanderson

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While most metals were stable on the LME, copper and nickel saw further falls yesterday, as the dollar strengthened.

There are also strong fears about the health of the aluminium price.

At close yesterday, copper was down to $9,519 on the LME, compared to $9,579 on Monday. Aluminium dropped by $3 on the day before to $2,477 and lead was up $2 to $2,665. Nickel fell from $23,435 on Monday to $23,100, while zinc softened slightly by $3 to $2,320 per tonne.

Credit Agricole analyst Robin Bhar told Reuters: “The market is definitely in a risk-off mode. The euro is being hammered, which is putting pressure on the base metals.

“But although there is a toxic mix of worries about global growth, the debt crisis and stronger dollar, commodities are showing surprising resilience. Clearly, the risk is for the downside, but I’m impressed by the resilience.”

In a research note, Credit Suisse pointed out that China increased its imports of virgin copper recently and a day-long strike at Chile’s Codelco mine, with the possibility of more to come, could increase the price of the metal.

It said: “While these concerns may lead to a temporary period of profit taking in the cyclical metals space, metals specific demand indications offered further signs of strength.”

RBC Metals also warned that aluminium was likely to suffer due to a fall in Chinese imports and a weaker oil price. In a research note, it warned that the Monday close of $2,480 was below the 200-day moving average of $2,498. It said: “This is quite bearish and we are suggesting a close below the head and shoulders neckline at $2,479 would confirm a much deeper sell off is on the cards.”

Concerns over the European debt crisis pushed the dollar higher against both the euro and the pound yesterday. The pound dollar exchange rate was almost half a per cent lower at 1.5834 yesterday, while the euro was down to 1.4061 against the dollar.

Fears remain over the health of Italian banks as well as the country’s ability to service huge debt levels, are helping to push the dollar higher against the euro. Overnight, the ratings agency Moody’s also downgrade Ireland’s credit rating to junk status a week after it did the same to Portugal. Greece could also be forced to default on its debts after ratings agencies pointed out that effectively forcing lenders to restructure, but calling it voluntary, was in practice a default.

Oil prices also rose on Tuesday as at that point the euro debt crisis seemed to be abating when the European Central Bank was rumoured to be buying up the bonds of distressed European governments. Additionally, better than expected Chinese growth of 9.5 per cent lifted world markets. This was only slightly lower than the 9.7 per cent recorded in the first quarter and should give the Chinese government room to continue to its efforts to curb inflation. The US Federal Reserve also released minutes indicating that it planned only a gradual easing of monetary policy, which helped the markets. Oil closed in New York for August delivery at $97.43 after dropping as low as $93.55 in early trading.  

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