London 29/03/2012 -  Yesterday's lack of follow through buying for the second day after Bernanke’s comments on Monday, suggest concerns over China’s growth are gaining traction. Copper is heading back towards the lower end of its range, as is aluminium, zinc and tin, while lead and nickel extended lower.

By the close yesterday, the metals were down an average of 1.3 percent, with copper and zinc leading the decline with losses of around 2 percent. All eyes now on whether copper starts to break out on the downside, for this we would need to see a move below $8,130.

This morning the base metals are slightly weaker with average losses of just 0.3 percent. Copper is off 0.2 percent at $8,352, aluminium is off 0.3 percent at $2,163 – just off important support at $2,148-2,151, while zinc is down 0.6 percent at $1,992 with support between $1,978-1,981. Volumes have been average with 5,085 lots traded.

In Shanghai the June contracts are off an average of 1 percent with zinc leading the decline with a 1.5 percent drop to Rmb 15,350, copper is down 1.1 percent at Rmb 59,650, lead is off 0.8 percent at Rmb 15,440 and aluminium is down 0.4 percent at Rmb 16,155.

Spot Changjiang copper is down 0.8 percent today at Rmb 58,900-59,200 and the contango is at an equivalent to $70/tonne, while the differential between LME and Shanghai copper futures is running at around $340/tonne which is narrower than of late – suggesting LME is falling at a faster pace than Shanghai.

Equities have started to look weaker in recent days - yesterday the Euro Stoxx 50 dropped 1.1 percent and the Dow was off 0.5 percent and the weaker tone has flowed through to Asia with the Nikkei down 0.9 percent, the Hang Seng is off 1.6 percent, the MSCI Asia Apex is down 1.2 percent and China’s CSI 300 is down 1.1 percent. Given the gains of late there is considerable room on the down side, for example the Dax is up around 19 percent so far this year.

The dollar is hovering around in low ground, while the Euro remains relatively upbeat as the debt crisis has been out of the headlines recently. The pound is firm at 1.5925, the aussie is weak at 1.0380, the yen is firmer at 82.50, as is the yuan at 6.3110. Gold and silver are treading water above recent lows at $1,662 and $32.00 – given the weaker dollar we would have expected a firmer bullion, but perhaps the market is concerned we may be heading for another bout of risk reduction.

The economic agenda is fairly busy today, UK house prices dropped more than expected, later we get data about UK lending and consumer confidence, German unemployment change and in the US initial jobless claims and final GDP. Three US central bankers are also speaking later in the day – see table on right for more details. Also noteworthy is that this evening we get a host of Japanese data including manufacturing PMI.  

Overall the fact the run up in metal prices earlier in the week faltered so quickly is a sign of overall weakness we feel and that raises the risk of prices pushing down through the bottom of the drawn out sideways ranges that we have seen in recent months - as indeed nickel and lead have started to do.

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