London Metal Exchange base metals staged a modest rebound Friday after sharp falls earlier this week, but further weakness may be seen early next week, said market players.
Fund buying quite aggressively pushed base metals higher ahead of the afternoon kerb, said a London-based broker, adding that trading was active.
Three-month copper was modestly supported near $7,300 a metric ton while zinc remained above $3,700/ton, a sharp reversal from earlier in the week when both metals dropped some 10% due to technical and fund selling.
Earlier Friday, the People's Bank of China announced that it would increase the benchmark lending and deposit rates, widen the yuan's daily trading band with the dollar, and raise the banks' reserve requirement ratio by 50 basis points effective June 5.
However, the news was largely shrugged off by the markets because it was already priced in, said analysts. The news "is no doubt contributing to the weaker tone we saw earlier in the metals markets, as well as some of the Asian equity markets," said Edward Meir of Man Financial.
Still, the news was not a major surprise. If China wants to curb growth, these policy tightening measures should not come as a surprise, said metals analyst Michael Widmer of Calyon in London.
Adding to bearish copper sentiment, China's copper output in April rose 17% on year to 274,000 metric tons, the National Bureau of Statistics said Friday. Total output in January-April rose 8.7% on year to 986,000 tons, the bureau said.
In zinc supply news, Australian miner Perilya Ltd. downgraded its full year production guidance Friday, after disruptions caused by a fatality at its Broken Hill mine.
The company expects full year zinc production of about 90,000 tons compared with a previous forecast of 100,000-105,000 tons, while lead production is expected to be at the lower end of previous guidance at 60,000 tons.
Meanwhile, three-month nickel and lead were also well-supported late Friday due to fund buying. LME data showed a drawdown in nickel stocks which also added to price support.
However, market participants still expect further declines over the short-term.
"We still would not want to bottom-pick here despite some technical indicators showing that we are oversold," said Meir. "These technical corrections could be fierce and we would rather wait for the dust to settle," Meir added.
Kevin Norrish of Barclays Capital agreed. "The correction continues and may not even be overdone just yet – as illustrated by the addition of new shorts in recent days." But the sell-off "is need to build a solid foundation before rising again," Norrish added.
Prices in dollar a metric ton.
3 Months Metal Bid-Ask Change from
Thursday PM kerb
Copper 7272.0-7273.0 Up 21
Lead 2058.0-2060.0 Up 62
Zinc 3720.0-3725.0 Up 50
Aluminium 2850.0-2851.0 Up 16
Nickel 50300.0-50400.0 Up 1550
Tin 13990.0-14000.0 Up 140
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