Base metals fall, copper at fresh 2-mth low on stock increases

Base metals were largely in negative territory in Tuesday’s premarket after LME trading resumed following an extended weekend break.

Copper was feeling the brunt of worsening sentiment, falling to fresh two-month lows of $4,610 per tonne while LME inventories continue to grow. It was last at $4,614 per tonne, down $1 on the Friday’s close, while more than 6,500 lots have changed hands on Select so far.

Stock increases continued this week – inventories jumped a net 11,650 tonnes, with the Gwangyang total rising 6,225 tonnes and a 6,825-tonnes increase in Singapore. This builds on last week’s jump – more than 60,000 tonnes were delivered into Asian sheds.

Poor premiums in China have encouraged metal owners to deliver onto the LME instead, market participants have said.

“The [price] strength in first quarter of 2016 was heavily influenced by a massive rise in Chinese imports, although these shipments were well in excess of actual requirements, thereby flooding the domestic market,” BoA Merrill Lynch Global Research said in a report.

“China has been eating through the inventories over summer,” it added. “Some of the excess metal has also been re-exported, while domestic smelters have shipped metal abroad as well. As a result, LME stocks have risen in recent days.”

The red metal is also struggling with a jump in short positions from speculators who are betting that the price will fall further.

On Comex for the week ending August 23, net short positions hit a nine-week peak.

As well, the dollar strengthened on the view that a Fed rate increase is on the cards before the end of the year. Supporting the case for a higher Fed Funds rate is news that consumer spending rose for a fourth consecutive month in July, MKS said.

“Near-term risks to prices are, however, skewed to the downside – the dollar could continue to strengthen and global financial conditions to tighten amid robust US data and the resultant higher Fed tightening expectations,” FastMarkets analyst Boris Mikanikrezai said.

Market participants will now wait for the release of China’s manufacturing PMIs on September 1 while Friday sees the release of US non-farm payrolls data.

Aluminium at $1,641 was down $1; stocks fell 6,850 tonnes to 2,239,500 tonnes and cancelled warrants were 9,100 tonnes lower at 917,600 tonnes.

Zinc at $2,302 was down $12.50 – it found support from tightness along the nearby curve. The benchmark cash/threes was last at a backwardation of $4.25 while cash/Sept was at $6, Cash/Oct at $6.65 and cash/Nov at $1.10.

This could be the result in metal being delivered into LME sheds but to date stock moves have been routine – stocks and cancelled warrants were both down 875 tonnes today at 453,300 tonnes and 24,375 tonnes respectively.

Nickel was $10 higher at $9,820 even after stocks increased 294 tonnes to 370,860 tonnes and cancelled warrants fell 174 tonnes to 110,412 tonnes. Lead at $1,874 was down $1; stocks increased 500 tonnes to 187,725 tonnes.

Tin at $18,865 was down $25 although stocks fell 45 tonnes to 4,485 tonnes and cancelled warrants rose five tonnes to 1,585 tonnes.

Steel, cobalt and molybdenum were neglected.

(Editing by Mark Shaw)