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LME METALS round-up: 3 August

Tough talk from the European Central Bank supported the markets, including the metal markets.

Tough talk from European Central Bank president Mario Draghi has supported the markets, including the metal markets.

Mr Draghi said that the bank would do “whatever was necessary” to preserve the European single currency.  It was not the first time that officials have taken a strong line, and the improved sentiment could fade quickly if the bank does not back its president’s words with action, for example buying beleaguered eurozone borrowers’ bonds.  The ECB’s governing council meets in early August, and this will be an early opportunity to see whether the bank is likely to deliver.  In the meantime, doubts persist about whether Greece has done enough to obtain the next tranche of aid.

With the US and European economies struggling, it is unlikely that the Chinese economy can make the running all by itself

Federal Reserve (US central bank) board chairman Ben Bernanke was more circumspect when reporting to Congress, but the relatively slow (1.5% annualised) growth rate of the American economy in the second quarter (down from 2% in the first quarter) persuaded numerous investors that a third round of quantitative easing (stimulus) by the Fed was needed.  This, too, supported the markets.

Elsewhere, the data was also poor.  Japan’s industrial production caused an unpleasant surprise by falling.  Factory output in the country was down by 0.1% month-on-month in June; this was less bad than the 3.4% dip seen in May, but it was also the third monthly decline in a row; the year-on-year fall in June was 2%, against forecasts of a 0.1% decline. In addition, the purchasing managers’ (PMI) index for manufacturing in Japan, compiled by Markit Economics for the Japan Materials Management Association, was down to 47.9 in July from 49.9 in June.

Elsewhere, the retail PMI for Germany, again compiled by Markit, came in at 50.3 in July, down from 52.4 in June, suggesting that the recent boost in the country’s retail sales had faded. The survey also suggested that wholesale prices were accelerating in Germany in July.

Optimists were now betting that the official Chinese manufacturing PMI for July – due to be published shortly – would exceed the 50.2 seen in June. But it would be unwise to make too much of that. With the US and European economies struggling, it is unlikely that the Chinese economy can make the running all by itself.

Metals details

On the London Metal Exchange, copper for delivery in three months was quoted at around $7,584 per tonne earlier this week, against $7,411 a week earlier.  Stocks of copper in warehouses approved by the exchange eased to 248,825 tonnes earlier this week from 251,450 tonnes a week earlier. 

Three month aluminium was holding at around $1,904 per tonne earlier this week, up from $1,872 a week earlier.  LME stocks increased to 4,886,725 tonnes from 4,845,400 tonnes a week earlier.

Three month aluminium alloy stood at $1,771 per tonne earlier this week, down from $1,790 a week earlier; LME holdings stood at 92,680 tonnes, down from 93,960 tonnes a week earlier.

Nickel was trading with the three month position at around $16,174 per tonne, against $15,527 a week earlier.  LME stocks moved up to 114,912 tonnes, up from 110,580 tonnes a week earlier.

Three month zinc was trading at around $1,863 per tonne earlier this week, having risen from $1,812 a week earlier.  LME stocks dipped to 999,750 tonnes earlier this week, from 1,007,300 tonnes.

Three month lead was trading at around $1,953 per tonne earlier this week, up from $1,859 a week earlier.  LME stocks eased to 326,950 tonnes, from 334,850 tonnes a week earlier. 

Three month tin was holding at around $18,349 per tonne earlier this week, having risen from $17,863 a week earlier.  LME stocks barely moved, rising to 11,765 tonnes earlier this week from 11,720 a week earlier.

Steel billet was trading with the three month position at around $410 per tonne earlier this week, down from $420 a week earlier.  LME stocks stood at 57,070 tonnes, up from 43,680 tonnes a week earlier.

Precious metals focused on the potential for American quantitative easing.  Thus spot gold bullion was trading at around $1,622.75 per ounce earlier this week, up from $1,575.00 a week earlier.  Spot silver was trading around $28.20 per ounce, up from $27.00 a week earlier.  Spot platinum was also higher, at $1,419 per ounce earlier this week, up from $1,391.

The charts

Chartists, who plot the prices of various commodities (and securities) on graphs, seek to observe patterns which will help them predict how the various markets are going to behave. One may have more or less faith in the value of this type of analysis, but it is undeniable that significant numbers of traders follow what the numerous chartists are saying, and frequently act on their opinions.

The following are more or less representative of what the charts are forecasting for the main metals:

  • Copper: support is likely around $7,200 per tonne and $6,800, while resistance is likely above $7,800 and $8,000.
  • Aluminium: support is likely around $1,820 and $1,600, while resistance was likely above 1,925 and $2,190.
  • Aluminium alloy: support is likely around $1,675, and resistance above $2,330.
  • Nickel: support is likely around $15,600 and $15,075, while resistance is likely above $16,350 and $19,075.

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