Commodity Corner

Live from London Metal Exchange Week 2009

The great and good of the global metals industry gather for London Metal Exchange week — the flagship event for the industry.

With most base metal prices running way ahead of fundamentals, real and apparent demand unclear and leading economies at different stages of recovery or not, its a key time to take the temperature of banks, producers, consumers and funds involved in metals.

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Chartists say base metals in bear market rally, for now

After the Federal Reserve said last week it would buy about $1 trillion of long-term U.S. debt, copper rallied to price levels seen in November.  Other base metals followed higher. 

Technical analysts at RBC Capital Markets referred to current metal action as “jobbers markets and not trends,” warning bulls “to beware of getting married to their positions in these choppy and uncertain times.” Others chartists said they were looking for confirmation of the price rally from demand indicators and would not recommend buying metals until the had clearly turned bullish.

The only analyst I spoke with willing to set specific upside targets was Barclays Capital technical strategist MacNeil Curry. He thinks London Metal Exchange copper can reach $4,300 to $4,500 a tonne, with possible scope above $5,000 a tonne. Specifically, Curry said he sees initial targets at $4,366 to $4,547 a tonne. He called short-term support at a trendline and recent low of $3,725 and $3,671. A move below that area would signal a bigger decline than previously forecast.

While LME aluminum has come off a two-month peak, it was trading in a new higher range above $1,400 a tonne. Curry said, “the path of least resistance is still clearly higher given the bullish divergences and weekly momentum indicators and given the strength in other commodity metals.”

A definitive break above that level would add to evidence that aluminum had completed an eight-month downtrend, the Barclays analyst said.

Curry sees zinc, currently trading at $1,280 a tonne, getting dragged higher. But it would need to break above January 7 high at $1,365 to really take off. A breakout puts in sight the 200-day moving average at $1,445 a tonne.

Commodities Roundup: Iron & Steel stocks lead the decline

In a sign of the concern of a global slowdown, the DJ Iron & Steel Index has shed 15.6 percent in the past week. It is the worst-performing of the stock sector indexes tracked by DJ. (See the DJ sector indexes here). The coal stocks index is the second, followed by Industrial Metals & Mining. In fact, of the ten worst performing, only two are directly financial sector indexes and the rest are directly related to commodities, basic materials and transportation.

In the futures market, U.S. November crude settled down $10.52 to $96.37 a barrel, after touching a session low of $95.04 after lawmakers rejected the bailout package.

“This decision is a shock to the system,” said Sarah Emerson, director of Energy Security Analysis Inc. “The oil market is reacting strongly in part because of the implications of a weak economy on demand.”

Gold, oil fortunes tied to dollar misfortune

Here are two outstanding examples of the ripple effects around the world when the dollar stumbles. Oil is at a record high at $110 and gold has topped $1,000 an ounce for the first time, while the dollar has fallen below 100 yen for the first time in more than a decade. Most commodities are priced in dollars, so the weaker the greenback, the cheaper it is for holders of other currencies to buy gold and oil. Gold is also generally seen as a hedge against oil-led inflation. Gold has jumped 19 percent this year on top of a 32 percent rise in 2007.