What's Moving the Market?

Base metals prices were holding generally steady in London Metal Exchange premarket trade Thursday, though the two recent star performers, lead and tin, posted modest gains. Three-months lead was bid at $3,243/mt at 0855 GMT, up $113 from Wednesday's evening kerb close as the market continued to benefit from strong demand and tight supply. LME stocks fell by a net 300 mt, with a 575 mt drawdown in Singapore partly offset by 275 mt of fresh warranting in Long Beach. "What can you say about lead? It's the metal of the moment," said a trader with one LME brokerage. "Five years ago, given the environmental issues and the bad press it was getting, you would have thought prices would decline steadily. Now it looks like it's going to overtake zinc." LME zinc prices were running at a premium of around $2,500/mt to lead at the beginning of this year; now the gap is less than $300, with zinc bid at $3,535/mt at 0855 GMT, up $15 from the previous close. Nickel was largely unmoved by another increase in LME stocks, which rose by a net 396 mt on the back of 480 mt of fresh metal coming on warrant in Rotterdam. "It's more Russian material going in. I think we'll see another 5,000-10,000 mt arrive by the end of the year," the trader said. "We could see LME stocks up to 20,000-25,000 mt." Total LME nickel stocks currently stand at 14,808 mt, up from a 2007 low of just 2,982 mt in early February. Despite the steady rise in inventories, however, the market continues to trade in a relatively narrow range, the trader said. "There's still buying when it dips down towards $30,000/mt, and selling at $31,500-32,000/mt," he said. Three-months metal was bid at $30,700/mt at 0855 GMT, off $75 from the previous close. Copper was little moved in early trade, up $20 at $7,875/mt. "Copper appears to be a battle between two funds at the moment," the trader said, adding that the market looked to have found a temporary equilibrium. Fund activity in the market, which has spurred tin to record highs of late, could be a recipe for increased volatility going forward, the trader suggested. "Once you get huge long positions like some of these funds have, how do you get out? Once people know that the funds are getting out of their longs, no-one's going to buy," he said. "A lot of funds just trade online -- if they want to buy 100 lots, they just take out all the bids. They're creating their own volatility." Tin moved back above the $16,000/mt level in early trade, bid at $16,025/mt at 0855 GMT, up $325 from the previous close. Primary aluminium slipped $6, to be bid at $2,732/mt, while standard alloy edged up $5, to $2,190/mt and North American alloy was off $5, at $2,170/mt.