Base Metals Whacked
Posted on: Jan 13th, 2009 | By Doug Casey | Filed under Financial News
The base metals were all shoved back deep into the red on Monday. Copper declined from the pre-dawn hours to mid-morning, then traded just off its intraday low for the rest of the day, finishing at $1.4285/lb., down nearly 9 cents.
Nickel was off sharply into the New York open, then traded slightly higher through the day to close at $4.6622/lb., down 61¼ cents. Zinc followed a similar path, ending at $0.5518/lb., down a penny and a half. Aluminum was weak, shedding almost 2½ cents, to $0.6718/lb., while lead plunged to its intraday low of $0.5182/lb., down more than 2 1/3 cents.
Whatever euphoria developed on Friday was gone with the wind on Monday, with copper leading the industrial metals lower across the board, as traders decided there was little room for optimism amid global demand destruction.
Copper was particularly hard hit because of a report out of China. According to government officials, the world’s largest metal consumer has discarded a plan to buy copper to support domestic smelters because producers are still profitable and inventories aren’t overly high.
The officials, who asked to remain unidentified, added that it has also been deemed risky to buy the metal now from overseas, since prices may have further to fall.
Granted, that may be a temporary position. “Aluminum and zinc prices [have] fallen below production costs and domestic supply can meet local demand,” however, “China still relies on imports to meet copper demand,” said Yang Changhua, analyst at Beijing Antaike Information Development Co. Chinese smelters don’t have enough copper to help build state reserves, he added.
Also adding pressure were copper stockpiles, which have been rising by leaps and bounds, a trend which shows no signs of abating. Inventories monitored by the LME surged another 5,925 metric tons yesterday, to 369,500 tons, hitting a fresh 5-year high.
One of the few notes of caution to the bears came from UBS (NYSE:UBS) analyst John Reade, who said that, “COMEX copper could be vulnerable to another short-covering rally due to the rather large net short position.”
In company news, Rio Tinto (NYSE:RTP) has postponed the US$2.15 billion expansion of its Corumba iron ore mine in Brazil, as the global downturn hits steel production. The world’s fourth-biggest diversified mining group is scrambling to cut costs and raise cash to ensure it can meet payments later this year on nearly $40 billion of debt.
The Corumba expansion was projected to boost annual capacity at the mine more than six-fold. from 2 million to 12.8 million metric tons.
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