[+/-] : Industrial metals fall as flu fears hit markets

* Large rises in aluminium, lead inventories but copper dips

* Economic downturn still hurts demand outlook

* Copper, zinc, nickel and lead slip more than 4 percent

LONDON, April 27 - Copper fell more than 4 percent before paring losses on Monday, as fears a deadly flu outbreak could reach pandemic proportions served a new blow to commodity markets battling economic turmoil.

Copper for three-months delivery on the London Metal Exchange closed at $4,350 a tonne from $4,470 a tonne on Friday but earlier hit a near three-week low of $4,252.

Battery material lead fell 6.5 percent to a day's low of $1,341.50 a tonne from $1,435 a tonne, and closed at $1,360. Nickel fell $175 to end at $11,375 from $11,550, and hit a day's low of $10,930 a tonne.

"Nobody knows what is going to happen with the swine flu," said Dan Smith, analyst at Standard Chartered. "People have got a bit optimistic in terms of risk-appetite, so we've seen a significant reversal of that in the last day or so."

"There have been quite a few positives in the market in terms of China, but the rest of the world has remained poor."

Fears of a global pandemic of swine flu, which first emerged in Mexico, grew over the weekend with new infections in the United States and Canada discovered on Sunday, and as millions of people in Mexico hid indoors to avoid a virus that has already killed more than 100 people.

A pandemic would deal a major blow to a world economy already suffering its worst crisis in decades, and experts say it could cost trillions of dollars.

European shares reversed earlier losses to offer some support later in the session, despite Asian stocks falling 2 percent on news of the flu outbreak.

"Investors in Asia are all the more aware of the potential damage after the outbreak of SARS in Hong Kong six years ago hobbled the city and regional economy, as well as flare-ups of bird flu in the past few years," RBC Capital said in a note.

Concerns about supply were reflected in the premium for cash over three-month contracts for copper.

"Stocks are falling rapidly and that is leading to tightness," said Robin Bhar, an analyst at Calyon. "It relates to the fact that there's a lot of material that's been cancelled and will leave the warehouses and be probably shipped to China."

He added that backwardation normally occurs in markets in a strong global economic environment, but the current anomaly in copper is due to a recent trend of demand from China.

COPPER INVENTORIES FALL

LME copper stocks fell by 4,275 tonnes to a three-month low of 425,275 tonnes.

Cancelled warrants - material tagged for delivery - stood at 67,600 tonnes, up from 65,800 tonnes on Thursday.

Market players widely believe the material is continuing a recent trend of heading for China. But worries linger that demand support from China may ease, and copper prices may come under pressure as markets approach a traditionally quiet season.

"Medium term, seasonally we're heading into a weaker demand period so you would expect prices to come back a little before an expected recovery before the end of the year," Standard Bank analyst Leon Westgate said.

Aluminium, used in transport and packaging, closed at $1,446 a tonne in LME rings from $1,457. Hitting the demand outlook, stocks of aluminium at LME warehouses continued rising, climbing 9,625 tonnes to a record above 3.7 million tonnes.

China's aluminium prices are expected to remain weak for the rest of the year as excess supply from resumed production capacity weighs on the physical market.

Tin ended at $12,400 from $12,600, while zinc eased 4.9 percent to a low of $1,350 from $1,420 a tonne but closed at $1,372.

Investors are also nervous about the release of U.S. bank 'stress test' results, a Federal Reserve meeting and a flood of earnings due later this week.

Metal Prices at 1611 GMT
Metal Last Change Percent Move End 2008 Ytd Percent move
COMEX Cu 197.50 -9.60 -4.64 139.50 41.58
LME Alum 1445.00 -12.00 -0.82 1535.00 -5.86
LME Cu 4365.00 -105.00 -2.35 3060.00 42.65
LME Lead 1360.00 -75.00 -5.23 999.00 36.14
LME Nickel 11275.00 -275.00 -2.38 11700.00 -3.63
LME Tin 12010.00 -590.00 -4.68 10700.00 12.24
LME Zinc 1370.00 -50.00 -3.52 1208.00 13.41
SHFE Alu 12540.00 -200.00 -1.57 11540.00 8.67
SHFE Cu* 34950.00 -320.00 -0.91 23840.00 46.60
SHFE Zin 11840.00 -270.00 -2.23 10120.00 17.00
** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

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[+/-] : China Called to Suspend Stockpiling Nonferrous Metals in H1, Association Officia

BEIJING, Apr. 28 - China should suspend reserving nonferrous metals in the first half year since the earlier government stockpiling has already played positive effects on the market and the one-million-ton reserve plan in three years has been completed by almost 60 percent, said Wen Xianjun, vice chairman of China Nonferrous Metals Industry Association (CNMIA).

According to the government's stimulus plan for nonferrous metals industry, China will purchase one million tons of aluminum for state reserve in three years. Up to now, it has purchased 590,000 tons or 59 percent of the total.

Aluminum prices in China have gone steady since December last year, but started dropping from April 13. Prices of Shanghai aluminum futures contracts have dived from 14,900 yuan/ton to 12,740 yuan/ton, close to the cost price.

Market expects the government to buy more aluminum in a bid to curb the price from slumping below the cost price.

However, Wen's remark showed his opposition to government reserves, which may exert great impact on the next move of the State Reserve Bureau, some analysts say.

Wen added that March and April are the peak period for the domestic aluminum enterprises to resume production. Therefore, large aluminum capacity will be released in May, which may lead to further slide of aluminum prices, analyzed Wen.

The domestic aluminum prices are expected to hover around cost price of 12,000-125,000 yuan/ton for the whole year, noted Wen.

(Source: chinamining.org)

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[+/-] : Commodity markets cautiously shift strategy

LONDON, May 5 - A credit crunch, economic downturn and now swine flu have knocked down expectations of a swift return to a commodities super-cycle, but signs have emerged of more adventurous trading strategies.

As proof of investor interest, flows of new money into commodities in the first quarter have been estimated at record levels as cheaper markets provided buying opportunities.

London Metal Exchange copper has risen by around 50 percent so far this year and U.S. benchmark crude futures have gained 22 percent.

The most investment in the first quarter went into single-commodity exchange-traded funds (ETFs), also known as exchange-traded products, which allow investors to buy a share in raw materials in a similar way to acquiring an equity stake in companies.

Daniel Wills of ETF Securities, an ETF specialist, said investors had become bolder after a period of carefully focusing on individual commodities.

"What we've seen more recently is investors starting to broaden their exposure and come out of their shell a little bit," he said.

"Initially that was into perhaps less of the safe-havens, moving away from gold. The next round of flows we saw were into silver. Most recently we've started to see a pick-up in the more industrial-related precious metals such as platinum and palladium."

After "massive deleveraging" at the end of last year out of the commodity indices, or baskets of commodities traditionally favored by long-only investors, there were tentative signs of positioning for economic recovery, said Olivier Jakob of Petromatrix.

"The composition of the passive investment has been different," he said.

"But a trend is starting to be visible...it could be investors are heading back to the broader indices to have a broader exposure and position for a potential recovery later in the year."

In addition, traders and analysts have said some appetite for risk had returned as under-investment in new production because of price weakness was expected to drive strong rallies as soon as a firmer economy stimulated commodity demand.

"We believe that this is very bullish for commodity prices over the medium term. Only a small recovery in end-user demand is likely to push many commodity prices sharply higher -- most likely in the second half of 2009," said Shaun Port of British-based Fitzwilliam Asset Management.

OUTLYERS

Base metals are considered among the most sensitive to early signs of economic recovery and increased industrial output.

Oil, as the most liquid of all commodities, would also be expected to respond quickly.

Its price has been moderated by huge levels of inventory, but supported by rapid action from the Organization of the Petroleum Exporting Countries, which has reduced output at a record rate.

"The differentiating feature is how quickly supplies have been curtailed in response to the price collapse and demand contraction," said Lawrence Eagles of JP Morgan in a note.

"The furthest ahead in the process seems to be oil and some of the base metals.

Reuters' latest poll of oil analysts found they had raised their forecast for the first time since July last year.

The survey predicts an average of nearly $51 in 2009 for U.S. crude, just short of Tuesday's price of around $54.

The market is still far from last year's record of nearly $150 and more cautious analysts point to the bearish factors.

EXCESS OF ENTHUSIASM?

World stock markets have this week climbed to four-month highs as traders anticipated a return to economic growth before the end of the year.

Some analysts have argued the equities strength could be premature and would therefore fizzle out.

In particular, the risk the swine flu outbreak that began in Mexico could worsen has increased the chances the economy could take longer than previously expected to recover.

Most commodities would be dragged back down in sympathy with any stock market correction, analysts have said, unless they shake off this year's habit of taking direction from equities.

Readjusting focus to the fundamentals of supply and demand would not necessarily push markets higher.

Even the ability of China -- a major consumer of raw materials that has maintained growth while the rest of the world has dipped into recession -- to support commodities is less than certain.

Richard Batty of Standard Life Investments said investors believed China could keep growing, but not to the extent that would send commodity prices surging.

"The market appears willing to believe a 6-8 percent GDP growth level in 2009 is possible -- a subdued growth rate by recent standards and not a sustained driver of commodity prices in the years ahead," Batty said.

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[+/-] : If China loses faith, the dollar will collapse

By Andy Xie

Emerging economies such as China and Russia are calling for alternatives to the dollar as a reserve currency. The trigger is the US Federal Reserve's policy of expanding the money supply to prop up the banking system and its over-indebted households. Because the magnitude of the bad assets within the banking system and the excess leverage of its households are potentially huge, the Fed may be forced into printing dollars massively, which would eventually trigger high inflation or even hyperinflation and cause great damage to countries that hold dollar assets in their foreign exchange reserves.

The chatter over alternatives to the dollar mainly reflects the unhappiness with US monetary policy among the emerging economies that have nearly $10,000bn (€7,552bn, ￡6,721bn) in foreign exchange reserves, mostly in dollar assets. Any other country with America's problems would need the Paris Club of creditor nations to negotiate with its lenders on its monetary and fiscal policies to protect their interests. But the US situation is unique: it borrows in its own currency, and the dollar is the world's dominant reserve currency. The US can disregard its creditors' concerns for now without worrying about a dollar collapse.

The faith of the Chinese in America's power and responsibility, and the petrodollar holdings of the gulf countries that depend on US military protection, are the twin props for the dollar's global status. Ethnic Chinese, including those in the mainland, Hong Kong, Taiwan and overseas, may account for half of the foreign holdings of dollar assets. You have to check the asset allocations of wealthy ethnic Chinese to understand the dollar's unique status.

The Chinese love of the dollar began in the 1940s when it held its value while the Chinese currency depreciated massively. The renminbi remains a closed currency and is not yet a credible vehicle for wealth storage.

The US could repair its balance sheet through asset sales and fiscal transfers rather than printing money. The $2,000bn fiscal deficit, for example, could have gone to over-indebted households for paying down debts instead of dubious spending to prop up the economy. When property and stock prices decline sufficiently, foreign demand, especially from ethnic Chinese, will come in volume. America's vast and unexplored natural resource holdings could be auctioned off.

The global environment is extremely negative for savers. The prices of property and shares are not yet good value and may decline further. Interest rates are near zero. The Fed is printing money, which will inflate away the value of dollar holdings. Other currencies are not safe havens either. As the Fed expands the money supply, it puts pressure on other currencies to appreciate. This will force other central banks to expand their own money supplies to depress their currencies. Hence major currencies may take turns devaluing. The end result is inflation and negative real interest rates everywhere. Central banks are punishing savers to redeem the sins of debtors and speculators. Unfortunately, ethnic Chinese are the biggest savers. Diluting Chinese savings to bail out failing US banks and bankrupt households will eventually destroy the dollar's status. Ethnic Chinese demand for it is waning already. China's bulging foreign exchange reserves reflect the lack of private demand for the US currency.

US policy is pushing China towards developing an alternative financial system. For the past two decades its entry into the global economy rested on providing cheap labour to multinationals and pegging the renminbi to the dollar. The dollar peg allowed it to leverage the US financial system for its international needs, while domestic finance re-mained state-controlled to redistribute prosperity from the coast to the interior. This dual approach has worked well. China could have its cake and eat it. Of course, the global credit bubble was what allowed the approach to be effective; its inefficiency was masked by bubble-generated global demand.

China is aware it must become independent from the dollar at some point. Its recent decision to turn Shanghai into a financial centre by 2020 reflects its anxiety over relying on the dollar system. The US will not pay attention to something so distant. However, if global stagflation takes hold, as I expect it to, it will force China to accelerate reforms to float its currency and create a single, independent and market-based financial system. When that happens, the dollar will collapse.

The writer is an independent economist based in Shanghai and former chief economist for Asia Pacific at Morgan Stanley

(Source: Financial Times)

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[+/-] : Chinese Zinc Futures Prices May Fall in The Short Term - Analysts

SHANGHAI, May 7 - Zinc futures prices on the Shanghai Futures  Exchange  (SHFE)  may slide in the short term on falling demand and increasing supply, an analyst said on May 6th.

"Zinc prices  have  rebounded  too  rapidly  recently  - the global zinc market expected  to  be in surplus this year. With the traditional slack consumption  season  from  May  to  August,  it is likely that SHFE zinc prices will  drop  in  the  near  future, Chen Xiaodong, an analyst from Guang Sheng Futures, said.

Chen added that the Chinese government has started implementing stricter controls  on  bank  loans  recently, which means there will be less cash flowing into commodity markets and commodity prices may be pulled down.

Furthermore,  increasing  market  supply  will have a negative impact on SHFE zinc  prices  in  the  near future. Since late March, domestic zinc output has  started  to  increase  due  to rebounding zinc prices, which encouraged  most  zinc  smelters  and  miners  to  restart operations at previously idle facilities, Sun Fan, an analyst from CITIC Futures, said.

Analyst Zhao Kai from Jinrui Futures predicted that domestic zinc pricesmay fall to RMB 11,000/mt (USD 1,612.15) before late August.

The most-traded  2009  August  zinc  contract  on  the SHFE ended at RMB 13,090/mt (USD 1,918.45) on May 6, up 1.36 percent from the previous trading day.

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