While base metals trade was choppy yesterday, they remain well supported, as risk appetite in financial markets has
been solid. After yesterday’s bullish Chinese data, combined with a US dollar trading above $1.5000 against the euro, the base metals complex saw good support on the downside.
The Dow Equity Index in the US also managed to hang on to the 10,000 level, while the S&P index in the US as testing the strong resistance level at 1,100.
All these factors are enhancing risk appetite. However, commodity markets remain cautious, as price levels do not reflect the underlying real demand — as evidenced by the failure of base metals to gain more upside during US trading hours yesterday.
The data front in the US is quiet today, with only existing home sales figures due for release. With the weekend ahead, there might be some profit-taking after the good run in prices so far this week. This could cap upside for base metals.
After testing $6,640 yesterday, copper retraced from to $6,590 at the PM Kerb. There are reports that the Chilean government is urging mineworkers and BHP Billiton to reach a deal at the Spence Mine in Chile. Also, Codelco indicated that it would table an early wage offer to avoid strikes.
The current labour contract with workers at Codelco ends in December. Supply issues, on the back of the wage negotiations, have been providing additional support to copper.
Aluminium attempted to break above $2,000 yesterday on an increasingly bullish oil market. However, the $2,000 price level still offers strong resistance, and we believe that energy prices would have to move closer to $90, and remain there, before aluminium would be able to sustain a move above $2,000. That said, the next strong resistance for WTI crude is $87/bbl, and should crude break above this, technical buying could see crude test $90. We do note believe oil is sustainable above $90 yet.
Zinc is still moving higher and, although it tracked copper, mainly sideways, it remains at levels last seen in May 2008. We still see the outlook for zinc, on a relative basis to other base metals, as positive. Lead closed at $2,405, while nickel saw selling as the complex drifted lower. Nickel closed at $19,200 — this is $535 down on the day.
