Base Metals Rally
Posted on: Nov 25th, 2008 | By Doug Casey | Filed under Financial News
The base metals were all solidly in the green on Monday. Copper went skyward late in the pre-dawn hours, peaked just shy of $1.70 in the late morning, then eased slightly into the afternoon hours, finishing at $1.6614/lb., up 8 2/3 cents from Friday.
Nickel peaked for the day near the New York open, dropped from there to mid-morning, but then rallied to close just off its intraday high at $4.6561/lb., up more than 10½ cents. Zinc also came off its highs near the open, but turned in a strong day nevertheless, ending at $0.5519/lb., up more than 2½ cents. Aluminum shot up from its pre-dawn lows, then held steady through the day, winding up with a gain of more than 2 cents at $0.797/lb., while lead moved modestly higher, tacking on a penny and two-thirds, to $0.5425/lb.
Copper was on the mend after the government’s decision to bail out Citigroup provided the market with a (possibly fleeting) shot of optimism.
The industrial metals tended to follow stock markets, which rose in the U.S. and Europe, and were a part of a general commodities rally. The MSCI World Index of equities jumped as much as 6.4%, and the Reuters/Jefferies CRB Index of 19 raw materials climbed as much as 4.1%.
“The rescue deal has provided the confidence factor,” wrote Alex Heath, of London-based RBC Capital Markets.
The RBC report added that, “We would not be surprised to see this rally run a little further given how short the market is at the moment, but we think there is much to be done before confidence is completely restored to the market and that rallies will continue to be used as a selling opportunity.”
Also factoring in yesterday were strong import trade statistics from China, the world’s leading metals consumer. That country’s monthly refined copper imports rose 15% in October to an eight-month high, boosted by attractive profit margins.
In the latest mining domino to fall, Norilsk Nickel Australia, a subsidiary of Russia’s Norilsk Nickel, announced the suspension of work at the Waterloo and Silver Swan mines in western Australia, saying that, “These mines have recently been operating in conditions of growing operational outlays, and considerable growth in production costs against a backdrop of a sharp fall in nickel prices, which has led us to suspend their operations.”
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I think the import statistics for China will be one of the most important indicators to keep an eye on going forward along with the Baltic Dry Index, a lead indicator of bulk dry shipping rates which has collapsed in recent weeks.
With LME copper inventories as high as they have been since March 2004, clearly the argument is for there being an oversupply. But the $586 billion Chinese simulus package focused on infrastructure and housing will act as a locomotive to cause a destocking of copper inventories and then help re-establish the demand -supply equilibrium
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The Baltic Dry Index: The Only Economic Indicator…