June 20, 2012 / 9:23 AM / 6 years ago

METALS-Copper extends losses after Fed "Twists" again

* Metals extend losses after Fed extends "Operation Twist"
    * Aluminium hits two-year low below $1,900 on supply glut
    * Coming up: China HSBC flash PMI for May

    By Chris Kelly and Harpreet Bhal
    NEW YORK/LONDON, June 20 (Reuters) - Copper ended down on Wednesday and fell
further to session lows in after-hours business, as investors were disappointed
that the U.S. Federal Reserve would not be as aggressive as many had hoped at
stimulating the world's largest economy.
    Fed policy makers said they would extend the central bank's bond buying
program known among investors as "Operation Twist" through the end of the year.
Many investors had been hoping for a third round of a more aggressive bond
buying program called quantitative easing (QE3).
    Nickel maintained its gains after the London close, but other base
metals extended losses after the Fed statement. Aluminum futures sank to
a two-year low below $1,900 a tonne, lead fell to its lowest level in
eight months, and zinc neared its 2012 trough.
    "Unequivocally, the markets are disappointed with the Fed's action. The fact
that the best the Fed could do is extend Operation Twist, even though we're
faced with a fiscal cliff in the United States and a potential break-up in the
euro zone, really puts The Fed's ability to react in question."," said Adam
Sarhan, chief executive of Sarhan Capital.
    The Fed said it was extending "Operation Twist," its effort to depress
borrowing costs by selling short-term bonds to buy longer-dated ones. The U.S.
central bank will buy $267 billion in longer-dated securities through the end of
2012. The Fed's "Twist" program was set to end this month. 
    In "Operation Twist," the Fed sells short-term government debt to finance
purchases of long-term debt, which helps keep long-term rates low. Many
investors were hoping for a third round of quantitative easing, in which the Fed
buys long-term government debt without selling short-term debt.
    "Another round of QE (quantitative easing) is pretty much off the table, and
that's why you're seeing markets sell off."
    London Metal Exchange (LME) three-month copper ended the day down
$64 at $7,545 a tonne. Losses mounted and dragged the price below $7,500 in
electronic trade.
    In New York, the COMEX July contract shed roughly 2 percent to a
session low of $3.3565 per lb in a knee-jerk reaction to the Fed's statement. It
finished down 4.60 cents at $3.3875 per lb.
    COMEX copper volumes were thin as investors cautiously awaited the Fed's
policy decision. Volumes neared 60,000 lots in late New York trade, nearly a
quarter below the 30-day norm, according to preliminary Thomson Reuters data.
    Copper is down more than 10 percent so far this quarter and is trading
around one percent lower for the year to date, as investors continue to price in
a low-growth environment for demand due to Europe's debt crisis, China's
slowdown and the U.S.'s fragile recovery.
    "The markets are now really very short, but there is a reason for that.
Sentiment has really deteriorated about the growth outlook and people now are
more concerned about China than they were even a few months ago," analyst Gayle
Berry of Barclays Capital said.
    "Risks are going to stay until there is some real action on sovereign debt.
Some of the short covering we saw yesterday has eased off as well," she added.
    Fears lingered that Spain's debt crisis could spiral out of control, with
its soaring borrowing costs showing that a euro zone deal to lend its banks up
to 100 billion euros ($126 billion) had not solved its problems or restored
investor confidence. It also suggests more aid may be needed to fix its
    Also adding to volatility overnight will be the China HSBC manufacturing
flash PMI for May which may give further clarity on the economic health of the
world's top metals consumer. 

    Aluminium fell to its lowest since June 2010 at $1,897.75 a tonne, tracking
falling copper and energy prices, and due to an glut of supply.
    Producers have kept smelters churning despite the tenuous outlook for global
growth due to high demand for their products from financiers who are able to
lock in small but low risk profit as set costs for storage and capital costs
fall below the aluminium forward price curve.
    Daily average primary aluminium output in May dropped to 67,900 tonnes
compared with a revised 68,100 in April and 69,900 in May 2011, provisional
figures from the International Aluminium Institute (IAI) showed. 
    "The IAI production data for May released today suggests that apparent
demand for aluminium was strong in May," an analyst at a U.S. fund said.
    "Although demand is holding at decent levels, unless we get supply cuts
and/or increased monetary stimulus soon, aluminium might be a victim of further
price falls. CTAs (momentum sellers) are selling as they anticipate poor
northern hemisphere summer demand," he added.
   Aluminium ended off $20.50 at $1,905.

 Metal Prices at 1740 GMT
  Metal            Last      Change  Pct Move   End 2011   Ytd Pct
  COMEX Cu       338.40       -4.95     -1.44     343.60     -1.51
  LME Alum      1904.50      -21.00     -1.09    2020.00     -5.72
  LME Cu        7545.00      -64.00     -0.84    7600.00     -0.72
  LME Lead      1880.00      -32.50     -1.70    2035.00     -7.62
  LME Nickel   17190.00       95.00     +0.56   18710.00     -8.12
  LME Tin      19200.00     -330.00     -1.69   19200.00      0.00
  LME Zinc      1866.00      -33.00     -1.74    1845.00      1.14
  SHFE Alu     15755.00      105.00     +0.67   15845.00     -0.57
  SHFE Cu*     55220.00      310.00     +0.56   55360.00     -0.25
  SHFE Zin     14930.00       70.00     +0.47   14795.00      0.91
 ** Benchmark 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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