Carnage on the LME

[markrmau]

Hi All,

As you probably know, there has been carnage on the LME. The question is, is it a genuine drop as a result of the previously excessive bullish fund buying, or was it purely due to stop losses / thin trading etc. If it was genuine, stay away from resources. If not, you may be able to pick them up on the cheap.

What do others think?

http://www.smh.com.au/articles/2004/10/14/1097607327934.html

Cheers,
Mark.

 

[wayneL]

From Macbank:

Base metals
· LME metal prices suffered one of their largest one-day price corrections
for some time with nickel leading the way with a massive 16.3% day-onday
fall, the fifth biggest daily fall in LME cash nickel prices ever (but only
the second biggest this year!). Copper fell 8% and aluminium was down
5.3% on the day, while zinc fell 6.3% (see attached article).
· Codelco's Division Norte and the supervisors union have resumed
negotiations to find a solution to the strike that began on Friday , a union
source said negotiations had been frozen since Friday. when the union
decided to proceed with the strike. Weaker industrial output in Germany,
France and Italy in August has raised new doubts about the euro zone’s
recovery. Data released on Wednesday showed a 0.8% m-o-m fall in
August Italian IP; this follows a 1.9% drop reported by France and a 1%
fall by Germany.
· BHP Billiton said it expects approval later this year for the Spence copper
mine, which would start output in late 2006 and eventually produce around
200,000tpa. It says that Spence is the most robust greenfield project in
copper in the world and that together with two expansion projects at its
Escondida mine in Chile, the group’s production would increase from just
over 1mt in fiscal 2005 to 1.4m tpa by 2008. Meanwhile, Australia’s WMR
reported that it is on track for annual copper production of 220,000-
230,000t and expected its copper output in 2005 to be in line with this
year’s targets. The company said it expected to produce 64,000-66,000t of
nickel metal in 2005.
· PT Tambang Timah, the world’s largest integrated tin producer said on
Wednesday its strategy is to maintain tin production at low levels in a bid
to prolong the company’s life due to limited tin ore resources. Timah’s
president director Throbrani Alwi said the company will produce around
35,000t of refined tin in 2004 and 2005, a 22% cut from 2003.
Precious metals
· Gold prices fell on Wednesday as investors continued to lock in profits with
the dollar strengthening against the euro. The yellow metal slipped briefly
under $410 to a two week low of $408.95, adding to Tuesday ’s correction.
At the time of writing gold was trading at $410.25/411.00 down from
$414.25/415.00 late in New York on Tuesday.

Base metals
· LME metal prices suffered one of their largest one-day price corrections
for some time with nickel leading the way with a massive 16.3% day-onday
fall, the fifth biggest daily fall in LME cash nickel prices ever (but only
the second biggest this year!). Copper fell 8% and aluminium was down
5.3% on the day, while zinc fell 6.3% (see attached article).
· Codelco's Division Norte and the supervisors union have resumed
negotiations to find a solution to the strike that began on Friday , a union
source said negotiations had been frozen since Friday. when the union
decided to proceed with the strike. Weaker industrial output in Germany,
France and Italy in August has raised new doubts about the euro zone’s
recovery. Data released on Wednesday showed a 0.8% m-o-m fall in
August Italian IP; this follows a 1.9% drop reported by France and a 1%
fall by Germany.
· BHP Billiton said it expects approval later this year for the Spence copper
mine, which would start output in late 2006 and eventually produce around
200,000tpa. It says that Spence is the most robust greenfield project in
copper in the world and that together with two expansion projects at its
Escondida mine in Chile, the group’s production would increase from just
over 1mt in fiscal 2005 to 1.4m tpa by 2008. Meanwhile, Australia’s WMR
reported that it is on track for annual copper production of 220,000-
230,000t and expected its copper output in 2005 to be in line with this
year’s targets. The company said it expected to produce 64,000-66,000t of
nickel metal in 2005.
· PT Tambang Timah, the world’s largest integrated tin producer said on
Wednesday its strategy is to maintain tin production at low levels in a bid
to prolong the company’s life due to limited tin ore resources. Timah’s
president director Throbrani Alwi said the company will produce around
35,000t of refined tin in 2004 and 2005, a 22% cut from 2003.
Precious metals
· Gold prices fell on Wednesday as investors continued to lock in profits with
the dollar strengthening against the euro. The yellow metal slipped briefly
under $410 to a two week low of $408.95, adding to Tuesday ’s correction.
At the time of writing gold was trading at $410.25/411.00 down from
$414.25/415.00 late in New York on Tuesday.
· Yesterday’s selling actually started just as traders were
finishing their LME formal dinner in London with the
selling being kick-started from China. After previously
having been large buyers of LME contracts (in part due
to rolling of LME/SHFE arbitrage positions ), Shanghai
traders started selling LME as the arbitrage between
LME and Shanghai turned in the other direction. This,
plus a large rise in LME aluminium stocks in Singapore,
set off a wave of profit-taking and selling from the Asian
region.
· As the LME market opened, the selling continued and
once prices had fallen through technical chart points
(moving averages, etc), there was heavy and concerted
fund selling which met no resistance.
· The carnage was brutal, especially in nickel, where
prices fell by 16.3% on the day and continued the sawtooth
price movement of nickel this year:
Nickel’s gyrations in 2004 are remarkable…
$/tonne $/lb % Change
6-Jan peak 17770 8.06
18-May low 10530 4.78 -40.70%
7-Jul peak 15980 7.25 51.80%
9-Sep low 12050 5.47 -24.60%
8-Oct - high 16595 7.53 37.72%
13-Oct 13700 6.21 -17.45%
Source: LME official cash prices.
· We have become used to these gyrations and with
markets likely to remain physically tight for some time
yet, they may well continue to be a feature of the market
during the res t of this year and into 2005. Nickel seems
to be in “equilibrium” now around the $14,000/t ($6.35/lb)
mark with significant movements above this attracting
selling and below it, buying.
Macquarie Research Commodities Commodities Comment - Base metal prices fall sharply Thursday 14 October 2004
3
Macquarie Research Commodities
Wednesday October 13, 2004
Commodity Prices
Closing Price * Closing Price * % Change 2004 Year-
13-Oct-04 13-Oct-04 12-Oct-04 12-Oct-04 Day- to-Date 2003 Year
$US/tonne US ¢/lb $US/tonne US ¢/lb on-Day US ¢/lb US ¢/lb
LME Spot
Aluminium 1780.0 80.7 1879.0 85.2 -5.3 76.5 64.9
Aluminium Alloy 1580.0 71.7 1585.0 71.9 -0.3 69.9 63.6
NAASAC 1650.0 74.8 1665.0 75.5 -0.9 74.4 63.1
Copper 2965.0 134.5 3222.0 146.1 -8.0 127.4 80.7
Lead 967.0 43.9 1010.0 45.8 -4.3 39.5 23.4
Nickel 13335.0 604.9 15930.0 722.6 -16.3 628.9 437.3
Tin 8910.0 404.2 9250.0 419.6 -3.7 381.8 222.1
Zinc 1061.5 48.1 1132.5 51.4 -6.3 46.7 37.6
LME 3 Month
Aluminium 1730.0 78.5 1825.0 82.8 -5.2 77.0 64.8
Aluminium Alloy 1610.0 73.0 1610.0 73.0 0.0 71.1 63.2
NAASAC 1675.0 76.0 1695.0 76.9 -1.2 75.6 64.3
Copper 2844.0 129.0 3066.0 139.1 -7.2 124.5 81.1
Lead 922.0 41.8 966.0 43.8 -4.6 37.7 23.5
Nickel 13375.0 606.7 15950.0 723.5 -16.1 623.8 436.1
Tin 8875.0 402.6 9200.0 417.3 -3.5 373.8 222.6
Zinc 1080.0 49.0 1150.0 52.2 -6.1 47.5 38.3
* LME unofficial closing price - 1700 hrs London time
Gold - London PM Fix ($/oz) 411.25 414.70 -0.8 401.88 364.11
Silver - London AM Fix ($/oz) 6.79 7.03 -3.4 6.48 4.88
Platinum - London PM Fix ($/oz) 826.50 838.00 -1.4 844.50 693.07
Palladium - London PM Fix ($/oz) 212.00 218.00 -2.8 236.47 200.42
Oil WTI - NYMEX Latest ($/barrel) 52.16 53.65 -2.8 39.62 31.07
Cobalt (99.8%) - Metal Bulletin ($/lb) 22.75 22.75 0.0 27.13 10.75
$US/€ Exchange Rate -Latest 1.227 1.232 -0.4 1.227 1.132
$US/$A Exchange Rate -Latest 0.724 0.731 -0.9 0.730 0.653
Change Since Last Report Cancelled End-03 Change
(tonnes) 13-Oct-04 12-Oct-04 Volume Percent Warrants Stocks Since End-03
LME Aluminium 700,425 683,425 17,000 2.5% 85,325 1,423,225 -722,800
Nymex Aluminium 17,537 17,277 259 1.5% - 142,245 -124,708
Nymex Al. Pieces (1) 42,777 48,790 -6,013 -12.3% - 70,486 -27,709
Shanghai Aluminium 135,036 135,036 0 0.0% - 27,253 107,783
Total Aluminium 895,775 884,529 11,246 1.3% - 1,663,208 -767,434
LME Copper 88,575 89,875 -1,300 -1.4% 430,525 -341,950
Comex Copper 41,417 41,908 -491 -1.2% - 254,864 -213,447
Shanghai Copper 28,705 28,705 0 0.0% - 110,596 -81,891
Total Copper 158,697 160,488 -1,791 -1.1% - 795,985 -637,288
Aluminium Alloy 42,460 42,460 0 0.0% 360 62,600 -20,140
NASAAC 97,460 97,460 0 0.0% 1,280 99,320 -1,860
Lead 50,975 51,225 -250 -0.5% 3,775 108,975 -58,000
Nickel 15,366 15,762 -396 -2.5% 348 24,072 -8,706
Tin 4,710 4,645 65 1.4% 495 14,475 -9,765
Zinc 721,000 721,375 -375 -0.1% 31,025 739,800 -18,800
Note: (1) Nymex aluminium "pieces" calculated based on 0.75t per "piece".