Metals News
METALS-Confidence Crumbles in Industrial Metal Markets
industry news
Mar 25,2010

NEW YORK/LONDON, March 24 (Reuters) - Industrial metal prices collapsed on Wednesday, succumbing to currency-led pressures and increased bouts of risk aversion as the dollar rallied on news of a credit rating downgrade for Portugal.

Copper for May delivery HGK0 closed down 3.35 cents at $3.3455 per lb on the New York Mercantile Exchange's COMEX division, after dealing in a tight $3.3210 to $3.3875 band.

On the London Metal Exchange, three-month copper CMCU3 closed at $7,375 a tonne in rings from $7,440 a tonne at the close on Tuesday. The metal, used in power and construction, is down over 5 percent since a top of $7,796 a tonne hit Jan. 7.

In other metals, lead CMPB3 fell to $2,007, its lowest since February 9, as the market fretted about stocks in LME warehouses, which are near their highest since the middle of 2003.

Aluminum CMAL3, used in transport and packaging, fell to a three-week low of $2,190 a tonne, zinc CMZN3 to $2,197.50, its lowest since March 3, and tin to $17,200, a level last seen on March 4.

The main catalyst for the broad sell-off was the currency markets, analysts said. The euro spiraled to a 10-month low against the dollar after the rating downgrade for Portugal added to concerns about the fiscal heath of some euro zone countries.

"It's all currency related," David Thurtell, an analyst at Citi, said of losses in base metals. "It's a knee-jerk reaction to the Greece and Portugal situation."

"I think people are just content right now to move to the sidelines, move into cash, and sit tight for a little bit and see how this plays out," Sterling Smith, an analyst for Country Hedging Inc. in St. Paul, Minnesota, said.

The market will keep a close eye on an European Union summit on Thursday and Friday, after Germany signaled for the first time that it may accept European financial aid for Greece as a last resort.

A strong dollar makes metals more expensive for holders of other currencies and a persistently higher dollar could prompt producers to raise prices as they seek to protect margins.

Investors worried that further policy tightening in China could cool demand in the world's largest base metals consumer.

"The timing and extent of China's fiscal tightening remains the key uncertainty for commodities," Barclays Capital said in a note. "China ... is likely to continue setting the tone for many markets in (the second quarter)."

Compounding weak sentiment was data showing sales of newly built U.S. single-family homes fell for a fourth straight month to a record low in February.

"Fourth month in a row that sales have declined. This is on top of the extended home-buyer credit ... it is still a depressed market," said a COMEX copper trader.

"We're still in a jobless recovery at this point and until that turns around, we are going to
have some struggles ... at least in the housing market."

But other data showed U.S. durable goods rose for a third straight month in February as businesses rebuilt inventories.

LME stocks of copper are down nearly 32,000 tonnes since March 1 to 520,450 tonnes, the lowest since Jan 11. Aluminum stocks are down 47,850 tonnes since hitting a record above 4.64 million tonnes on Jan 20.

Aluminum was at $2,224 from $2,256, zinc traded at $2,211 from $2,240 and tin was last quoted at $17,500/17,550 from $17,650. Tin hit a session low of $17,200, its lowest since March.4.

Lead CMPB3 was at $2,026 a tonne from $2,104 on Tuesday. The battery material is under pressure from LME stocks, which, at 171,600, are four times the level seen in late 2008.

A fall in canceled warrants -- material already tagged for delivery -- to 11,425 tonnes from 15,450 in early February has also undermined sentiment in the lead market. Stainless steel ingredient nickel CMNI3 traded at $22,275 a tonne from $22,495 on Tuesday.

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