Base Metals in the Crapper
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The base metals were down again on Friday. Copper plummeted for a third straight day, dropping from the open to past noon, after which it did bump up at the end to finish at $3.7796/lb., down 6½ cents.
Nickel was also off sharply, falling to the $12 level but bouncing off of it several times to close at $12.0508/lb., down 28½ cents. Zinc plunged, just coming off its intraday low to end at $0.9637/lb., down 2 2/3 cents. Aluminum had a day of big ups and downs to little effect as it added less than a quarter of a cent, to $1.2843/lb., while lead continued to crater, falling below $1 at one point before crawling back barely above it at $1.0013/lb., down 4¾ cents.
The bears remained firmly in control of the industrial metals, as concerns about declining demand take hold with a vengeance.
Zinc now sits at a 6-month low, but lead in particular is a battered and fallen angel. It had soared on supply worries to $1.75/lb. last October. Yesterday, it plunged below the $1 mark for the first time since May of 2007, on advancing inventories in the midst of seasonally low demand for batteries.
After the poor technical close Thursday, there was continued technical selling on Friday, said one LME trader. Sentiment has turned negative with inventory rises recently for many of the metals, he explained. Copper inventories monitored by the LME were up by a massive 11,150 metric tons yesterday, to 121,275 tons.
The China factor is big. “The path of least resistance in LME copper in the next month or so is lower,” said JP Morgan analyst Michael Jansen. He expects to be able to buy copper around $7,800/ton-$8,000/ton (vs. $8,195 yesterday) before it makes its next move up towards $8,800/ton-$9,000/ton.
“This is because Chinese buyers right now are relatively well supplied,” Jansen said, noting an increase in Shanghai Futures Exchange inventory levels this past week.
Ron Goodis, a futures-trading director at Equidex Brokerage Group, is very cautious going forward. “Things have been much more volatile than usual,” Goodis said. “Prices have stretched to such extremes, it’s beyond reasonable limits. You have to be long at your own peril.”
A potential supply side development, though, is a strike at Namibia’s largest zinc mine, scheduled to have started last midnight. The Skorpion Zinc mine annually produces 150,000 tons of special high grade zinc for the Asian, European and North American markets.
And though we don’t normally cover rare earth minerals, the mining situation with regard to them is critical, with dire implications for the U.S. if nothing changes. For a chilling report on the situation, click here.
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Tags: , aluminum, Base Metals, Brokerage Group, china, Industrial Metals, JP Morgan, Lme Copper, Metals Copper, Michael Jansen, nickel, resources, Shanghai Futures, Ups, ZincAbout the Author
Doug Casey is a contrarian investor, sought-after public speaker and author of several books. His work "Crisis Investing" held the position of # 1 bestseller on the New York Times list for 26 consecutive weeks. Doug's unusual views on the economy - and just about everything else - have gained a huge following in the investment community, and it certainly helps that his stock recommendations of undervalued junior exploration companies have made his subscribers millions. Now in its 27th year, Doug's monthly newsletter, the International Speculator, is one of the most established and esteemed publications on gold, silver and other natural resource investments. Together with the Casey Energy Speculator, it covers a broad range of carefully selected stocks with the very real potential of double- and triple-digit returns within 12 to 24 months.