The base metals closed strongly on Friday with short covering emerging late-on after late. The rally came in spite of poor US economic data, wit the metals following the dollar rather than the data. Copper has been by far the most interesting metal this morning, with a massive 11.5% jump in net SFE open interest - to 380,566 contracts - being coupled with a big increase in LME Select turnover.
The main focus for the increase in SFE activity was the Feb-10 and Mar-10 contracts, with big gains in open interest more than offset declining open interest in the Nov-09, Dec-09 and Jan-10 contracts. Prices for the Feb-10 SFE copper contract - the most liquid contract at the moment - rallied just over 3%, while LME 3-month prices have also climbed very strongly, trading back above $6,700 this morning.
Quite why Chinese interest in copper has jumped so strongly today remains unclear. The obvious reasons are either improved order books for next year, or concerns by Chinese investors over the possible impact on inflation that maintaining the yuandollar peg will have, in the face of expectations of further dollar weakness. Given the suddenness of the move, it would appear to be the latter, however, we note that it was this time last year that the Chinese started to buy copper in bulk, albeit at much lower price levels.
In other news, Codelco is reported to have raised its premium to Chinese customers to $85/mt for 2010, compared to the $72- 75 levels seen this year. Meanwhile, LME copper inventories picked up again with on-warrant stocks climbing by 2,950 mt.
Interestingly, the main location for the increase was Hamburg (+2,000 mt), with only 250 mt entering Asian warehouses. Elsewhere, the other base metals haven’t had much of a look in. While LME Select volumes for copper are well on track to overhaul Friday’s total by the early afternoon, turnover amongst the rest of the complex remains very poor indeed. Prices are higher across the board however, helped by a weaker dollar and concerns over snow-related transport disruption in China after the heaviest snowstorms in 60 years swept across central and northern provinces.
Zinc in particular rallied strongly overnight, on concerns over disruption in China, though volumes remain relatively subdued. Of note, on-warrant zinc stocks climbed 10,100 mt this morning, the main location for the increase being Detroit, up 8,000 mt. The zinc inventory figures have however been largely ignored by the market.
Courtesy: Commodities Research, Standard Bank
