London 12/04/2012 - The base metals put in a day on consolidation yesterday after the steep sell-off seen on Tuesday. On average the metals were up 0.5 percent with lead up 2 percent and aluminium up over 1.2 percent, while tin and copper ended in negative territory.

The fact copper ended the day down 0.5 percent at $8,048 suggests there was insufficient buying at the multi-month low price levels to give prices a lift and if that continues it could become a negative issue. On the copper chart prices broke lower on Tuesday and remained below the break down level at $8,131 yesterday. What is more, we note that copper was under pressure even while equities were putting in a strong performance.

However, overnight buying has materialised, copper is up 0.9 percent at $8,120 and the high has been $8,131.75 – so the breakdown level has now been tested. The other metals are up by an average of 0.5 percent, with tin also playing catch-up with a 0.8 percent gain to $22,650. Volumes have been high with 8,172 lots traded, of which 5,490 lots were copper.

In Shanghai the June contracts are up by an average of 0.6 percent with lead up 1.1 percent at Rmb 15,640, zinc up 0.7 percent at Rmb 15,470, copper and aluminium are both up 0.3 percent at Rmb 58,230 and Rmb 16,100.

Spot copper in Changjiang is up 0.3 percent to Rmb 57,700-57,900 so the market is back in contango, while the LME/Shanghai arb gap has widened slightly to around $305/tonne.

Equities – The Euro Stoxx 50 climbed 0.9 percent and the Dow was up 0.7 percent yesterday as the markets recovered from Tuesday’s down day and the firmer tone has carried through to Asia where the Nikkei and the Hang Seng are up 0.7 percent, the MSCI Asia Apex is up 0.3 percent and the Shanghai CSI 300 is up the most with a 1.6 percent gain.

The dollar remains on a back footing with the dollar index drifting lower, last at 79.60, while the euro at 1.3133 is getting some light lift off support at 1.3000. Sterling is firmer at 1.5933, the aussie is strong and was supported by good jobs data, the yen is strong at 81.02 and the yuan is little changed at 6.3086. Gold and silver continue to consolidate, last at $1,659 and $31.70.

The economic agenda is busy and includes: EU industrial production, US PPI, trade balance, initial jobless claims and there are five FOMC speeches today – see table on right for more details.

Given the broad based strength across markets with equities showing gains and metals rebounding, it does look as though the markets have put aside the recent concerns about data and Spain’s debt problems. As such, we would not be surprised to see further strength in the base metals in the short term, but would keep a wary eye on developments in EU debt. On balance we still feel the base metals will work lower over the medium term.

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