London Metal Exchange base metals tumbled Tuesday due to fund liquidation and increasing fears of risk reduction, with expectations for further sales over the near-term, said market participants.
Three-month lead dragged the base metals complex lower due to fund liquidation and profit-taking after it touched a fresh record high of $2,745 a metric ton earlier Tuesday, said brokers. Investor positioning ahead of the third-quarter end June 30 also added to base metal price volatility, they added.
"You've got month-end, quarter-end, and half-year end all this week," said Robin Bhar of UBS. "A lot of the macrofunds are short."
Technical indicators also point to an oversold lead market.
"At these levels, the price of lead is considerably above the highest cost producer and will correct very sharply once supply and demand are seen to come into balance again," said Bart Melek of BMO Capital Markets.
Weakness in lead carried over into the rest of the complex with zinc and nickel falling 4% each.
Adding to general bearish metals sentiment, U.S. new-home sales fell 1.6% in May to a seasonally adjusted annual rate of 915,000, below consensus. U.S. consumer confidence fell in June to its weakest reading since August, also below expectations.
The housing data added to a bleak U.S. housing outlook. Existing-home sales dipped during May to their lowest level in nearly four years, while inventories climbed and prices fell a tenth straight time, according to the National Association of Realtors Monday.
Moreover, outside markets were also negative with spot silver tumbling some 5%, gold dropping below the psychological $650 a troy ounce, and London's FTSE 100 closing down 0.4% at 6,559.30 as losses from most heavyweight banks weighed on the index.
Analysts said fears of risk reduction have also been weighing on metals prices since trouble erupted over failed investments in subprime mortgages by two Bear Sterns hedge funds last week. Analysts said risk reduction could trigger a decrease in investor interest in metals as well as liquidation of metal assets to help meet margin calls in other asset sectors.
Meanwhile, LME zinc fell due to rising stocks and falling prices in China, indicating exports from China are about to surge, said Kevin Norrish of Barclays Capital.
Three-month copper dropped 1% but ongoing supply concerns in South America continue to underpin prices over the near-term.
Striking workers at Southern Copper Corp.'s Peru units are still on strike but will meet with representatives of the Ministry of Labor Wednesday, aiming to end a walkout that began on Saturday, union leaders said.
A strike that forced Xstrata to declare force majeure on shipments from its Canadian Copper Refinery near Montreal is also ongoing.
Meanwhile, mining operations at Corporacion Nacional del Cobre de Chile, or Codelco, are back to normal after contract workers protested Monday at most of the company's mining and smelting operations, company spokespeople said Tuesday.
Three-month nickel also joined in on the downside action, dropping some 4% despite a drawdown in LME inventories Tuesday.
Nickel prices should "continue to expect further downside risk...in light of the market's easing fundamentals," said Barclay's Norrish.
Prices in dollar a metric ton.
3 Months Metal Bid-Ask Change from
Monday PM kerb
Copper 7359.5-7360.0 Dn 115.5
Lead 2580.0-2585.0 Dn 130
Zinc
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