LME Metals Mixed In Asia; Copper's Direction Key

SINGAPORE--Base metals on the London Metal Exchange began the week in sluggish trade, as uncertainty over copper's short-term price direction damped market activity, traders said.

Copper's spectacular bull run since the start of March has given a lift to the whole complex. It's trading in a key technical range at the moment, and whether it breaks above or below may determine short-term sentiment toward base metals, traders said.

Three-month copper ranged between $7,820 a metric ton and $7,965/ton in Asia, and as of 0620 GMT, was last traded at $7,910/ton, down $40 on the London Friday afternoon kerb. Aluminum edged $5 higher to $2,845/ton, zinc was down $20 at $3,650/ton, and nickel was down $101 at $48,599/ton.

"We're right in the middle here. It'll be interesting to see what London will do," said a Hong Kong-based trader at an international commodity house.

The range of $7,800-$8,000 is said to be important as resistance above $8,000 has proven to be strong in recent sessions, traders said. While copper's recovery Friday demonstrated that there's a large contingent of market players looking to buy on dips, its failure to close above $8,000 points toward some short-term technical weakness, they said.

"Short-term there is likely to be good liquidation from long hedge funds," said a trader in Tokyo at a large Japanese trading house.

The end of a four-day strike at PT Freeport Indonesia's massive Grasberg mine in Papua province Saturday also will weigh against upside momentum, even though some traders said its impact was limited. Miners returned to work Sunday, and a company spokesman said Monday that output has returned to normal.

A Hong Kong-based trader at another international commodity house said copper may consolidate below $8,000 in the short term, as there's a lack of fresh buying at current levels. "People are hesitant to get long at the top of the market," he said.

Chinese copper import data released Monday by customs showed imports more than doubled on year in March to 202,955 tons. However, this was mostly a detailed breakdown of earlier statistics and didn't give much fresh impetus to the market.

Still, falling copper production in China indicates China may need to import more copper in 2007, though not as much as in the first quarter, said JP Morgan in a daily note.

"Going forward China will need to either increase its domestic production of copper or continue to tap the international market for refined metal to feed its domestic requirements," wrote analyst Michael Jensen.

JP Morgan expects copper to break above $8,000 and rise to around $8,200-$8,500, largely on fund buying and short-covering, before pulling back as an expected surplus in 2007 slowly begins to weigh on sentiment.

Macquarie Research, in a weekly note, said Chinese lead exports may increase substantially in coming months because of lower domestic prices relative to LME prices. Macquarie also warned that the global zinc market may tighten seriously in the second quarter as China's zinc exports decline sharply, since domestic zinc prices make it more favorable to sell into the market rather than export.

U.S. data releases this week should provide some cues to the complex. U.S. consumer confidence, durable goods orders, home sales and first-quarter gross domestic product should help gauge U.S. economic growth and activity in the housing sector.

As of 0620 GMT, tin had gained $50 to $13,700/ton; lead was last quoted at $1,920/ton, down $59 on the kerb but had yet to trade in Asia.