Base metals edge higher, market cautious ahead of FOMC minutes

Base metals were mostly in positive territory on Wednesday, October 12 in the LME premarket, recovering slightly after yesterday’s sell-off.

But a stronger dollar ahead of the release of the latest Federal Open Market Committee (FOMC) minutes continues to weigh on prices.

The dollar index was recently at a stronger 97.72, reflecting the growing expectation that the Fed will lift its benchmark interest rate by 25 basis points before the end of the year.

Last night, Fed Bank of Chicago president Charles Evans became the latest member of the central bank’s policy board to pave the way for a December increase, saying that policy “may well be changing soon”.

“The base metals have again been turned back on the approach of resistance levels, implying that there is still top-of-range selling to be done and the buyers are struggling to absorb it all,” Metal Bulletin analyst William Adams said.

“Key will now be whether the selling will dominate for a while; given the strength of the dollar, it may well do. We would not give up our overall bullish undertone but it may take further better economic news to prompt buyers to chase prices higher again. We expect dips to remain well supported,” he added.

In data, the German WPI was better than forecast at 0.4% while the French final CPI was as expected at -0.2%.

FOMC members William Dudley and Esther George are scheduled to speak tonight before the release of the FOMC meeting minutes, which are likely to create some volatility in the dollar, market participants noted.

In the metals, the three-month copper price recently traded at $4,821 per tonne, up $9 on the previous close.

In today’s warehouse data, copper stocks fell a net 1,500 tonnes to 347,850 tonnes and cancelled warrants climbed 4,975 tonnes to 85,600 tonnes.

The three-month aluminium price recently traded at $1,678, down $2. Stocks fell 7,300 tonnes to 2,109,425 tonnes and cancelled warrants increased 5,200 tonnes to 849,525 tonnes.

Spreads remain tight, with the cash dates in a backwardation – cash/Oct was last at $5.

“We see no justification for the high prices given that more and more supply is reaching the market,” Commerzbank noted.

Previously idled capacity of 1.3 million tonnes per year in China will return to operation by the end of the year while 1.8 million tonnes per year of new capacity is due to come online, Chinese research institute Antaike estimates.

“This is very likely to mean that China will be producing record quantities of aluminium towards the end of the year – and will thus also be exporting even more material,” Commerzbank noted.

The three-month nickel price recently traded at $10,490 per tonne, up $65. Nickel stocks fell 252 tonnes to 360,540 tonnes.

“The price seems quite happy to range generally between $10,000 and $11,000 for the time being and we don’t see a break either way as things stand today,” broker Triland noted.

The three-month zinc price was recently at $2,256 per tonne, up $6. Both stocks and cancelled warrants were 350 tonnes lower at 456,800 tonnes and 34,625 tonnes respectively.

“The zinc market is likely to come under further pressure with the news that Peru’s Antamina operations will double output to some 360,000 tonnes, which would more than negate analysts’ forecasts of a net deficit next year of some 100,000 tonnes,” Kingdom Futures’ Malcolm Freeman said.

“It is more than likely much of this is already in the price but it will keep downward pressure on prices,” he added.

The three-month lead price at $2,041.50 per tonne was down $6. Stocks fell 675 tonnes to 189,950 tonnes.

The three-month tin contract recently traded at $19,865, up $40. Stocks edged 30 tonnes lower to 3,370 tonnes.

The three-month steel, cobalt and molybdenum contracts were ignored.

(Editing by Mark Shaw)