Base Metals: Is it selling or buying time?

The base metals have stalled after yesterday morning’s impressive gains. Significant selling activity emerged late-on Monday, particularly in zinc, but also in aluminium and copper, robbing the complex of its upwards momentum. This morning, the initial strength in prices - helped by firmer Asian equities – has since been eroded by a strengthening in the dollar during the morning session. The exception is Aluminium which has shrugged off the impact of the dollar and made steady progress higher on the back of decent buying interest. Data-wise this afternoon sees the release of the November US Factory Orders (expected +0.5%) and Pending Home Sales numbers (expected -2.0%). If positive, both may lend support to the industrial metals this afternoon. Also due out later today are the US auto sales numbers. While primarily a number for the PGM market to focus on, a solid figure above the 11 million mark should also be positive for the industrial metals too. Compared to Monday, copper volumes have dropped off markedly. The lack of activity and direction has seen the metal revert to dollar watching, with prices trading sideways heading into the afternoon. Meanwhile, the fairly rapid resolution of the strike at Xstrata’s Altonorte smelter - after 8 days - suggests the Chuquicamata strike may also be short-lived, removing some of the metal’s recent support. Aluminium has managed to grind higher, in spite of the lack of activity elsewhere in the complex, with the move coming on the back of decent turnover. While copper was the busiest metal yesterday, with over 10,000 lots trading on LME Select, aluminium has been the main focus this morning attracting fresh buying. Zinc has also been busy once again, with turnover on LME Select only just trailing that of copper. The metal had a busy day yesterday, with over 6,500 lots trading on Select, with that level of activity continuing to be seen. Price-wise however, the metal still appears to be taking its directional cues from copper. In other news, Indonesia is planning to increase production by at least 10% for all metals, with the sole exception of tin. The country is looking for a 25% boost in nickel production and a 17% increase in copper output, in-line with the global economic recovery and in order to benefit from the recovery in prices. In contrast, tin production will instead be capped at 105,000 mt this year, in-line with 2009 production levels.