London Metal Exchange base metals were mixed Wednesday as investors digested poor U.S. economic data and there were ongoing concerns of risk aversion, but a period of consolidation may be in store over the near-term, said market participants.
Base metals came off moderately on the back of a weak session in Asia and weaker equities, said BNP Paribas analyst David Thurtell, adding some profit taking was seen as the market enters the summer slowdown.
Worries of an economic slowdown, triggered by growing concerns over U.S. and U.K. subprime mortgage defaults as well as weaker-than-expected durable-goods data, pressured metals prices, said a U.S.-based metals analyst.
Demand during May for durable goods in the transportation sector decreased 6.8%, after falling 1.8% in April. Orders for commercial planes tumbled 22.7%, while military aircraft orders rose 9.8%. Motor vehicles and parts increased 2.3% last month. These sectors are particularly important for the base metals complex.
The combination of market worries and poor data helped pressure European and U.S. equities Wednesday.
It remains to be seen just how widespread a problem the subprime mortgage jitters – triggered after failed investments in subprime mortgages by two Bear Sterns hedge funds last week – create for the rest of the financial system. However, "any sign of widening problems emanating from the U.S. mortgage market could trigger a second-leg to the current selloff across asset markets, although perhaps not until after the end of the month, quarter, and half-year," said Robin Bhar of UBS.
Traders said book-squaring and positioning ahead of the end of the first half of 2007 Friday has also added to trading volatility.
Consumers continue to wait on the sidelines for now, leaving markets at risk of a fresh leg lower, said an LME broker.
Three-month lead was under pressure for much of Wednesday following news efforts to ship some 9,000 metric tons of lead in concentrate stranded at Australia's Port of Esperance are making progress and it will be shipped within the next six weeks.
Elsewhere, the copper market continued to watch labor negotiations in key production sites in South America.
Striking workers at Southern Copper Corp.'s Peru units will decide whether to temporarily lift their strike after a meeting Wednesday with officials from the labor ministry, a union representative said.
Meanwhile, operations at Corporacion Nacional del Cobre de Chile, or Codelco, continue as normal despite a contract workers' protest.
Three-month zinc dropped another 2% on the day amid major losses in Shanghai zinc futures.
"The implications of tightening stocks might not be felt during the seasonally quieter summer period, but with supply-chain inventories being operated at minimal levels, it might kick in when buyers eventually return to the market," said Kevin Norrish of Barclays Capital.
In other news, a Russian government commission on duties decided Wednesday to annul the 10% import duty on primary aluminium.
Prices in dollar a metric ton.
3 Months Metal Bid-Ask Change from
Tuesday PM kerb
Copper 7360.0-7370.0 Up 0.5
Lead 2590.0-2595.0 Up 10
Zinc 3345.0-3350.0 Dn 55
Aluminium 2704.5-2705.0 Up 6
Nickel 37500.0-37600.0 Up 5
Tin 13925.0-13975.0 Unch
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