Purchasing

Robert J. (Bob) Garino

Copper leads the decline in nonferrous prices during LME Week
October 8, 2007

Copper, zinc, tin, lead, aluminum and nickel all declined today on the London Metal Exchange (LME) and trading there this week will be characterized by “price drift” due in part to Monday's holidays in North America and Japan, the distractions associated with LME Week, and a slightly firmer dollar…

LME Week always takes place in October to bring producers, traders, users and other interested parties (shippers, for example). Many of the events are organized by LME broker members and are by invitation. The LME organizes two events; a metals seminar and the dinner.

This morning in London, spot copper dropped the most since August on speculation a four-week price rally is deterring Chinese buyers from purchasing the metal used in plumbing. Three-month copper eased below the $8,000/metric ton ($3.63/lb) level and New York Commodity Exchange (Comex) copper traders are anticipating a weak opening in futures trading this week...

But, we may be seeing much firmer copper prices over the last several weeks, spurred on by the weaker dollar and also by price support is coming from some very real supply side worries—an on-going strike in Mexico and now a strike action in Peru, where miners there are also calling for a national strike starting Monday, November 5th…

Closer to home, copper scrap is best characterized as readily available with demand “soft,” at best…“hand-to-mouth” is what we’re hearing (since) consumers are just not interested; also, China is all but absent this week.

Never mind that the global market may post a surplus this year and next, according to ICSG (International Copper Study Group), market watchers are focusing on the now and the fact that reported copper inventories have dropped by some 209,000 metric tons so far this year…should the $8,000/metric ton level continue to hold, some are thinking that the red metal could challenge $8,800 ($3.99) recorded last May, or perhaps even that $4.20/lb guess we heard about at the Institute of Scrap Recycling Industries annual April Convention…

Meanwhile, brand new price forecasts from Société Générale analysts for 2008 are: Aluminum, $1.09/lb; copper $2.95; lead, 98¢; nickel, $14.51; tin, $6.12; zinc, 95¢. Although these early 2008 forecasts are all lower than what is expected for this year, it’s hardly a pessimistic outlook…

In reviewing the third quarter that was dominated by the sub-prime mortgage mess and the ensuing “credit crunch,” the SG crew characterized the financial woes’ global impact on commodities and equities as both “modest” and “brief.” Reason: Next year’s global GDP (gross domestic product) growth has been scaled back, however, but not all that much: From 5.2% to 4.8%. 2008, they believe, is on track to be the fifth consecutive year with global growth around 5%. 

Final word: It’s still hard to think of $1.60+ lead metal with even higher per-pound highs being predicted. This is one metal whose fundamentals are hard to ignore--a tight concentrate market, less Chinese exports to the West and low LME stocks as the so-called “battery season” gets going—and all to that speculative high-priced fluff…

Posted by Robert J. (Bob) Garino on October 8, 2007 | Comments (0)