Base metals plummet in London

London Metal Exchange base metals dropped sharply Friday as bearish sentiment continued to weigh across a number of asset classes, and further metal weakness and volatility are likely next week, said analysts.

Major liquidation and profit-taking thirty-minutes ahead of the PM kerb close exacerbated the session's earlier losses.

Profit-taking ahead of the weekend and a bearish sentiment across a number of asset classes pressured base metals sharply lower, an LME trader said.

"The market is taking its lead from equity markets as well as fundamentals which for a number of base metals is deteriorating," the trader noted, "so it all points to the same direction lower."

U.S. stocks continued their week-long trend, falling amid concerns over the health of the U.S. economy and the yen's rally against the dollar.

"As the yen is strengthening, some of those carry trades done in yen are now being unwound," said Robin Bhar of UBS. "The money borrowed in yen terms went into a lot of assets like property, commodities, fixed income and so on. Some of that money is now leaving commodities."

Carry trades occur when investors borrow in a currency such as the yen, since Japan's interest rates are low, and put the money to work elsewhere.

Zinc endured the greatest percentage decline Friday, giving back roughly 10% of its gains this week due to technical related selling and ongoing concerns of Chinese demand for the metal. China is the world's largest consumer of base metals.

According to customs data released earlier this week, China imported 27,631 metric tons of unwrought zinc and alloy in January and exported 71,377 tons. Zinc ore and concentrate imports almost doubled on year to 106,508 tons, the data said.

Aluminium ended the week down over 5% driven by fears of increasing supplies, with LME stocks as well as Shanghai stocks rising Friday. Aluminium stocks in LME warehouses around the world have climbed roughly 15% since the start of 2007.

In other metals, three-month copper traded below the key $6,000/ton price level amid an aggressive burst of speculative liquidation, one broker said.

Concerns over increasing copper supplies also weighed with LME copper stocks increasing roughly 7% since the start of 2007 while Shanghai copper stocks rose 32% in two weeks to 40,886 tons.

However, nickel remained under pressure but supported near record highs of $42,200/ton due to critically low warehouse stocks. With canceled warrants – or material accounted for and to be drawn down at a later date – at roughly 40% Friday, available LME stocks comprise less than a day's worth of global nickel consumption.

Looking ahead, traders said the metals markets will continue to keep a close watch on the global equity markets.

Prices in dollar a metric ton.
3 Months Metal     Bid-Ask        Change from
                                 Thursday PM kerb
Copper          6015.0-6020.0       Dn  95
Lead            1850.0-1855.0       Dn  65
Zinc            3320.0-3325.0       Dn  150
Aluminium       2748.0-  N/A        Dn  47
Nickel         41000.0-41100.0      Dn  500
Tin            13150.0-13200.0      Dn  175