Earthquake adds more pressure on the metals market

The metals sold off heavily intraday yesterday, at the day’s lows average losses were 2 percent, with lead dropping the most with a 4.2 percent drop to $2,378 9 - up until yesterday it had been holding up well, while copper dropped 1.8 percent to $9,115. However, once oil prices started to retreat the metals attracted bargain hunting and they went on to close mixed and in a broad range either side of unchanged with zinc and aluminium 0.4 percent higher, while lead was down 1.1 percent and copper was off 0.6 percent – so certainly a choppy day’s trading. Most of the charts have been quite badly damaged, the exception being aluminium, although the underlying tails put in on most of the metals do show good bargain hunting interest into yesterday’s close.

This morning the metals are under pressure again with the massive 8.8 magnitude earthquake in north-eastern Japan shaking markets. Average losses across the LME as of 07:05 were 0.5 percent, copper is down 0.5 percent at $9,175, while lead has dropped the most, it is down 1.1 percent to $2,327. Volumes are average, although the focus remains on copper that has traded 3,177 lots out of total volume of 5,116 lots.

Equities – the Dow fell 1/9 percent yesterday and Asia is weak on the back of the US and the earthquake, with the Nikkei down 1.7 percent, the Hang Seng is down 1.5 percent, The MSCI Asia Apex is down 1.6 percent and China’s CSI 300 index is down 0.8 percent.

The yen has weakened to 83.20, the aussie is 0.9985, the pound is down at 1.6045 and the euro is at 1.3800, which translates into a stronger dollar with the dollar index at 77.29. Gold is firmer at $1,415, Silver is at $35.24 and oil is weaker at $100.96.

In Shanghai the May contracts are mixed, copper is down 0.3 percent at Rmb 69,340, aluminium is little changed at Rmb 16,770 and zinc is up 0.2 percent at Rmb 17,755. Spot Changjiang copper picked up 0.6 percent to Rmb 69,550-69,800 – suggesting the pull back has attracted some restocking which has put the market in a backwardation. The LME/Shanghai arb has widened further to negative $340/tonne, while the zinc arb has moved negative again.

Today’s economic agenda is busy. Chinese data has already been released and shows a mixed picture, industrial production was stronger than expected as was PPI and fixed asset investments, but retail sales were lower than expected. German WPI was also more than expected. Later we get US retail sales and University of Michigan consumer sentiment and inflation expectations, plus the EU summit continues as ministers search for direction on Libya and the EU debt crisis. See table for more details on the data.

The metals face numerous cross currents as trading opens up in Europe, the earthquake in Japan has weakened equities in Asia and before that equities in the US were weak anyway. There are reports that copper production facilities and power facilities have also been shut in the region. The dollar is firmer and that is likely to provide a headwind for the metals, however, weaker oil prices should give the markets something to cheer about. In Europe there are increased strains on the debt situation and that might add downward pressure to the euro and raise overall concern.

On balance the metals generally look heavy, although in recent days they have already fallen quite far and therefore there may be more bargain hunting. The pull back in oil prices may well provide further incentive for bargain hunters. However, with today being Friday and the day of potential heightened unrest in the Middle East, oil could rally again. With equities and underlying market sentiment focused on the Middle East and oil we would expect events in the Middle East to drive sentiment, but the impact of the earthquake and today’s economic events are likely to have an impact too. Overall therefore we would expect a choppy and nervous day’s trading – but would be on the look out for bargain hunting.

LME Overnight Performance

	7:05 AM	+/-	+/- %	Lots
Cu	9175.75	-50.25	-0.5%	3177
Al	2578	-9	-0.3%	549
Ni	25945	-120	-0.5%	200
Zn	2280	-10.25	-0.4%	919
Pb	2427	-28	-1.1%	261
Sn	29700	0	0.0%	10
Steel Med	0	0	0.0%

Economic Agenda

Time	Country	Period	ACTUAL	Expected	Previous
2:00am	China	CPI y/y	4.9%	4.8%	4.9%
2:00am	China	Industrial Production y/y	14.1%	13.3%	13.5%
2:00am	China	NBS Press Conference
2:00am	China	PPI y/y	7.2%	7.0%	6.6%
2:00am	China	Retail Sales y/y	15.8%	19.0%	19.1%
2:09am	China	Fixed Asset Investment ytd/y	24.9%	23.3%	24.5%
7:00am	EU	German Final CPI m/m	0.5%	0.5%	0.5%
7:00am	EU	German WPI m/m	1.4%	1.0%	1.2%
All Day	EU	EU Economic Summit
9:30am	UK	PPI Input m/m		1.4%	1.7%
9:30am	UK	PPI Output m/m		0.7%	1.0%
1:30pm	US	Core Retail Sales m/m		0.7%	0.3%
1:30pm	US	Retail Sales m/m		0.8%	0.3%
1:30pm	US	FOMC Member Dudley Speaks
2:55pm	US	Prelim UoM Consumer Sentiment		77	77.5
2:55pm	US	Prelim UoM Inflation Expectations			3.4%
3:00pm	US	Business Inventories m/m		0.6%	0.8%
8:45pm	UK	BOE Gov King

Source