SINGAPORE--Base metals on the London Metal Exchange were little changed in Asia Wednesday as the market awaited the London opening to gauge the strength of fund buying, traders and analysts said.
A large inflow of pension fund buying has been fueling the rally in copper and other base metals, and trading activity at funds will be key to the complex's short-term direction, they said.
Three-month copper was at $8,078 per metric ton as of 0615 GMT, up $31 on the London Tuesday afternoon kerb. Aluminum was $8 lower at $2,882/ton and zinc was down $3 at $3,716/ton.
"People are just waiting to see if funds are in consolidation mode," said a Hong Kong-based trader at an international commodity house. "There's no real change in terms of news or data, it's more just fund managers pouring into the market," he said.
The potential for a strike at Freeport McMoRan Copper and Gold's (FCX) massive Grasberg mine in Indonesia is providing some support to copper, but it is the pension funds and hedge funds that are largely moving the market, traders said.
"Commodities are the flavor again," said another Hong Kong-based trader. While some profit-taking was seen in Asia after the sharp rally overnight, the outlook is definitely for more gains as fresh buying will likely prompt short-covering by commodity trading advisors and speculators, he said. "The way the market's been talked about recently, $8,200 certainly is achievable in the future," he said.
In a daily report, Standard Bank said fund buying interest has risen because strong Chinese demand, dollar weakness and supply disruptions are all occurring at the moment. "Bulls get at the best of their momentum when they see all these drivers together and from this of view copper is the chosen one, once again," Standard Bank said.
In the latest development at the Grasberg mine in the province of Papua, talks between PT Freeport Indonesia and Tongoi Papua, a group representing Papuan employees at the mine, were proceeding smoothly, according to parliamentarian Alfius Edoway.
The parliament of Papua's Mimika regency, located in the regency's capital Timika near Grasberg, is coordinating the talks, Edoway said.
A PT Freeport spokesperson said all operations at the Grasberg mine are continuing at full production and copper concentrate shipments haven't been affected by a rally being held by Tongoi Papua. Grasberg is believed to have the world's largest gold deposit and the third-largest copper reserves.
About 3,000 members of Tongoi Papua began a three-day strike Wednesday near the mining company's headquarters. The group is in talks with PT Freeport over wages, benefits and job advancement for Papuan employees, but has yet to rule out a strike if their demands aren't met.
Gains in copper should continue to give a lift to the whole complex, while a pullback will also likely lead to declines in other base metals, traders said.
"The whole complex has been moving up on the back of copper to varying degrees," said a Hong Kong-based trader at an international commodity house. He added that the other metals may see fresh buying by traders who want to hedge their short positions in copper, which may explain zinc's 6% jump overnight.
Aluminum, meanwhile, may struggle to break above $2,900. Although the metal saw good buying above $2,860 Tuesday, it has encountered producer selling each time it approaches $2,900, said a Tokyo-based trader at a Japanese firm.
"Given the strength of other metals, it is a bit surprising that aluminum couldn't take out $2,900."
Three-month aluminum's repeated failures to break $2,900 suggest that weaker consumer demand, especially in the U.S., is weighing on the market more than expected, he added.
As of 0615 GMT, nickel was quoted at $48,299/ton, down $100 from the London PM kerb; tin was quoted $150 lower at $14,850/ton; and lead was quoted down $185 at $2,015/
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