Mondays these past few weeks have usually seen the market in Australia start with a bang after a solid finish to US bourses and commodity prices on the previous Friday night.
Not today; metal prices were hammered, especially in London, with zinc, copper and lead taking the brunt after reports that a hedge fund called Red Kite, had sustained huge losses last month in metal markets.
Zinc and copper led the slump as metal stocks rose and The Wall Street Journal reported that Red Kite Management’s $US1 billion metals fund made losses last month, possibly as much as 20 per cent.
Zinc fell the most in at least 18 years and copper dropped as much as 6.3 per cent at one stage. Aluminum, lead and tin also were also weak.
On the London Metals Exchange copper fell more than 4.5 per cent to $US5,340 a tonne on Friday, and was down 8 per cent for the week. It hit a 10-month low of $US5,255 during the day.
Zinc fell more than 9 per cent to $US3,065 a tonne, and briefly dipped below $US3,000 for the first time since July. Zinc was down 15 per cent over the week even though zinc stocks are still at relatively low levels of under 100,000.
But they are moving higher and last week’s forecast from Zinifex that the metal would become easier to obtain in 2007 didn’t help sentiment.
Aluminium was three per cent lower over the week, closing at $US2,715 a tonne while nickel avoided the weakness in the base metals sector, rising $US550 to $US37,400 a tonne on Friday but were still down sharply from the all time high of over $US41,000 a tonne. Nickel prices were off 2 per cent in the week.
After its best week for six months gold was sold off on the better than expected US jobs news (fewer jobs were created than expected) and then by the sell off in base metals. London bullion dropped $US 8 to $US645.20/$US645.85 a troy ounce as the US dollar firmed against other currencies. It closed at $US652.90, down $US 11 an ounce in New York.
But oil prices again rose, finishing up $US1.72 in New York at $US59.02 a barrel. That will get the inflationary bears growling again and should help gold but the instability in base metals won’t let that happen until the Red Kite situation is clearer.
All this will make for a difficult start here today. The overnight SPI on Saturday was steady with the close the day before so investors will take their lead from the fall in the base metals in London.
BHP Billiton helped drive our market to Friday’s closing record. They will retreat today.
The ASX 200 Index added 17 points to 5,831, based on the latest available data, finishing at a record closing peak for a second straight day and the All Ords rose by a similar amount to 5818.
BHP Billiton added 1.3 per cent Friday to $A26.59. It is due to report its first-half results next Wednesday.
Rio lost 1.3 per cent to $A77.24, despite the 25 per cent rise in its second-half earnings and the record profit and dividend for 2006. Analysts showed some confusion Friday in their reactions to the RIO result. Some said average, others said good, with signs of more to come.
The higher oil price will offset a touch any copper induced-weakness in BHP’s price but the Rio report showed that copper is the major profit driver and BHP Billiton’s interim will again confirm the centrality of copper to the company’s profit picture.
