Base Metals: Copper is testing $6,600

After a very bullish start yesterday, base metals sold off sharply as US equities declined and the US dollar strengthened.
We would look closely at US consumer sentiment data due for release later today. With the market already risk-averse, a
weaker-than-expected number could see more long liquidation. However, should the number be very good, short-covering
might push base metals prices higher quickly.

Copper struggled this morning in Shanghai. We still believe the market remains well supplied in China and we still believe that copper prices are unlikely to sustain large rallies in Q4:09. However, as long as underlying supply issues in Chile continue, we do not expect a major sell-off. Copper is testing $6,600 again. Zinc and aluminium have seen good support despite yesterday’s sell-off.

While copper has been driving the complex, both zinc and aluminum showed better resistance to the stronger dollar yesterday. This morning, there was buying interest in both metals. With crude oil trading higher, support for aluminium remains. We also remain more bullish on zinc relative to the other base metals. LME aluminium stock declined 4,475 tonnes while zinc stocks increased 875 tonnes.

Lead is trading around $2,300 while nickel is slightly higher at $18,600. While speculative activity remains very high in commodities we believe this will make base metals more volatile.

While we believe upside remains limited for this quarter from current levels, we believe large dips in metals prices should be bought.

Courtesy: Commodities Research, Standard Bank