13 June 2003 05:28
AAP MARKETS REPORT for Friday June 12, 2003 =3 Sydney
COMMODITIES In LONDON, base metals futures on the London Metal Exchange (LME) ended Thursday's kerb mostly
higher as moderately positive U.S. retail sales and jobs data gave the complex a much-needed shot in the arm after
early-day fund selling-induced losses. The United States Commerce Department said retail sales grew 0.1 percent last
month to $308.78 billion after a 0.3 percent drop in April. Though retail sales inched up 0.4 percent in May, the sales
figure was held down by weaker gasoline receipts amid falling fuel prices. John Kemp, economist at Sempra Metals, said
that consumer spending remained anaemic despite the successful and relatively quick end to the war with Iraq and added
that the weakness of the job market was holding down wage growth and personal income. "Hopes for a post-war bounce
have largely evaporated. Underlying spending is improving month on month but not fast enough to spur an increase in
manufactured output. It now looks like industrial activity will remain stuck in the doldrums throughout the summer with
hopes for a stronger upturn postponed until the fourth quarter," Kemp said. "Given that many metals already
are already generously valued at these levels (certainly aluminium and probably also copper) there is scope for
substantial price falls," Kemp added. Three-months copper ended Thursday's kerb at $1,697 a tonne, up from
$1,690 at Wednesday evening's kerb close. Aluminium followed the trend higher after the U.S. data release and ended
the day at $1,384.50, versus $1,376 at the last close. Nickel was the odd man out, registering steep losses in light of
Wednesday's news that Russian metals giant Norilsk Nickel is releasing 24,000 tonnes of metal from a stockpile, and
thereby easing supply worries. Supply concerns reached fever pitch over strike action at Inco Ltd's Sudbury,
Ontario, facilities, which began on June 1. Prices ended the kerb at $8,840, versus $9,070 at the last kerb close.
"The combination of more material released from Norilsk Nickel 's consignment stock and evidence of slower
stainless steel operating rates in Europe will help ease near-term market tightness considerably in our view, despite
the ongoing strike at Inco," Ingrid Sternby, base metals analyst at Barclays Capital, said. "Given heavy fund
exposure on the long side, we expect the LME three-month price to trade below the US$9,000 for the rest of this year and
rule out another sharp price spike in the near term unless the strike at Inco continues for an extended period of
time," Sternby added. In other metals, zinc gained $2 on the day to stand at $793, while tin was little changed at
$4,710/20, versus $4,720 previously. Lead ticked up to $466 from $464. In NEW YORK, NYMEX July crude futures ended 2.6
percent lower after dropping as much as $1 a barrel on Thursday as traders took profits, ending a five-day run-up capped
Wednesday by a large drop in commercial stocks. NYMEX July crude settled 85 cents lower at $31.51 a barrel. In late
trade, it fell to an intraday low of $31.36 and peaked at $32.24 in the morning. The contract had gained more than $2 in
the five sessions to Wednesday, hitting a fresh three-month high of $32.50, before the day's profit-taking spree.
The day's decline coincided with Iraq's award of its first post-war oil tender on Thursday for 10 million
barrels held in storage. But the prospect for future exports remained uncertain due to production hampered by looting
and security concerns. "The rally above $30 was bound to stop somewhere ... people decided to take some profits
today," said a NYMEX floor trader. In London, IPE benchmark July crude settled 56 cents or 2 percent lower at
$27.83 a barrel, after dropping as low as $27.68. Gasoline and heating oil futures also pulled back after racking up
large gains with crude. NYMEX July gasoline, which gained nearly 7 cents in the five days to Wednesday, settled 4.36
cents, or 4.7 percent, at 89.05 cents a gallon. It hit a session low of 88.80 cents after jumping on Wednesday to 93.65
cents, the highest in almost 2-1/2 months. A rash of recent refinery troubles in Louisiana and California helped that
rally. NYMEX July heating oil futures settled 2.68 cents, or 3.4 percent, lower at 76.42 cents a gallon, after gaining
almost 4 cents in the previous five sessions. It posted a session low of 75.80 cents, after hitting 79.80 cents on
Wednesday, its highest level in almost eight weeks. A dearth of market-moving news kept the petroleum markets trading on
technicals, traders said. Analysts said a NYMEX July crude's break below $31.85 triggered more selling. On
gasoline, the July contract's drop below support at the 91.20/91.50 cents area caused further unloading. "But
a complete reversal of the past week's progress is required to turn the (gasoline) market fully bearish," said
Tim Evans, senior market analyst at IFR-Pegasus. Wednesday's rally was fueled by U.S. government data showing crude
stocks last week fell by 4.6 million barrels to 284.4 million barrels, over 12 percent below last year. Analysts had
expected inventories to be up slightly. OPEC on Wednesday decided to put off fresh supply cuts at a ministerial
policy-setting meeting in Qatar. Fears that ramped up Iraqi output or anemic demand amid a shaky world economy could
pressure prices caused the cartel to call for another meeting on July 31. Traders said this potential for a cut would
lend some support to the market. Venezuela has said OPEC would move for a cut in output quotas at the July meeting if
Iraqi output returned to a million barrels a day. In NEW YORK, COMEX gold fell to a 1-month low Thursday in the
downdraft of a weakening euro/dollar rate, remaining under pressure from speculative long liquidation even after the
European currency fought its way back up. Signs of modest improvement in the U.S. economic activity also reduced the
desire to hold gold as a safe-haven. August gold closed down $2.30 at $353.90 an ounce, trading $356.60-$351.50. Dealers
said the loss suggested that Wednesday's $3.40 gain was a blip in the new down trend confirmed by the
contract's $10 plunge under $360 on Tuesday. "The only thing that could save it at this point would be a
significant break down in the dollar," said metals analyst David Meger at Alaron Trading in Chicago. The euro
opened lower against the dollar, reducing the purchasing power of European investors for dollar-priced precious metals.
It rallied to $1.1767/72 by Thursday afternoon, versus $1.1752/58 late Monday. Futures traders focused on support at the
100-day moving average at $350.30 for gold, which nearly coincides with the psychological $350 an ounce chart point.
"You found a little buying coming in off the dollar sliding back a bit, but it's still closing down,"
Meger said. "As long as the dollar stays within this range, I think you're going to see long liquidation in
the gold market easily test that 100-day moving average." Spot gold was last quoted at $353.10/3.80 an ounce, down
from Wednesday's close at $355.35/5.95. London's afternoon fix was $352.25 an ounce. U.S. retail sales rose
0.1 percent in May, according to Thursday morning data, better than the flat number expected and improved from
April's 0.3 percent drop. The report fit the picture of an economy trying to rise out of the doldrums after the
quick combat victory in Iraq. Financial market worries about growth and global instability sent gold to 6-year highs
near $390 an ounce in February. Gold made a bid at reclaiming those highs two weeks ago as the dollar fell to its
lowest-ever price at $1.1932 per euro, which has been trading since January 1999. But futures ran out of buying at
$375.80 on May 27, with speculators even more overbought on the COMEX than they were in February. "When the retail
sales number came out the market had already been depreciated so there was no incentive to sell any more," said a
floor broker. "People in general are focusing on the idea that the economy is slowly getting better so gold is
being sold," he said. Weekly jobless claims data also lent some hope the jobs picture could be improving. First
time claims for unemployment benefits fell 17,000 to 430,000 in the June 7 week. July silver settled up 0.5 cent at
$4.505 an ounce, trading between $4.515 and $4.475. Spot silver rose to $4.50/52 from $4.49/51 late Wednesday. The fix
was $4.495. MORE
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