The base metals were little changed on Wednesday. Copper held up well through mid-morning, but declined when it counted, slipping to near its pre-dawn intraday low and finishing at $1.4922/lb., down a penny.

Nickel also experienced a late-day letdown, but not enough to bleed red as it closed at $5.214/lb., up 2 1/3 cents. Zinc had a modestly positive day, ending at $0.5244/lb., up three-quarters of a cent. Aluminum was steadily higher through most of the day, adding more than a penny to $0.6228/lb., while lead also edged higher, tacking on a penny at $0.5305/lb.

Copper was only a little bit off its highs on Wednesday, as reports of increased Chinese buying and general optimism kept the metal buoyed for a second straight day.

The metal responded positively to reports that China has started buying copper from domestic bonded warehouses and overseas markets, in a move expected to triple its state reserves to about 1 million metric tons.

China’s Purchasing Manager’s Index, a manufacturing gauge, rose in January from the previous month, the China Federation of Logistics and Purchasing said. The index was up to 45.3 in January from 41.2 in December and a record 38.8 in November, the group said. Although a reading below 50 indicates a contraction, the trend is positive.

As analysts at Barclays Capital in London put it, “The improvement versus the previous two months at least offers a sign of some bottoming out.”

Also sounding a cheery note was BNP Paribas, which predicted yesterday that China’s stimulus package will boost copper demand 6.2% this year, while spending in the U.S. will increase use of the metal by 4.1%.

But once again, stockpiles served as an effective cap on any breakout to the upside. Copper inventories monitored by the LME were up yesterday, adding 4,650 metric tons, to 499,950 tons. That’s the highest level since November 2003.

Regarding nickel, warehouse stocks fell 114 tons yesterday, but are still up over 7% for the year.

“Inventories of nickel are not rising as sharply as the other metals, suggesting the supply-demand balance for nickel has stabilized a bit,” said Daniel Smith, of Standard Chartered in London. “We’re not looking for a huge surplus this year because supply has been cut back so sharply.”

On the other hand, Smith conceded that nickel demand is “awful,” with first-quarter stainless-steel consumption expected to decline more than 20% from a year earlier.

Source: Base Metals Little Changed

Last 5 posts by Doug Casey

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