Aluminium at 5-yr low; market awaits US rate cut decision

Aluminium at 5-yr low; market awaits US rate cut decision

London: Aluminium hit a five-year low on sluggish demand from the car industry and copper fell 4.3% as markets awaited the US Federal Reserve’s interest rate decision on Tuesday. “There is a lot of doom and gloom, everyone is selling on the anticipation the economy is going to continue to be weak," said Randy North, a trader at RBC Capital Markets.

London Metal Exchange (LME) aluminium hit $1,435 (about Rs68,600) a tonne, the lowest since October 2003, before rising to $1,456 a tonne by 10.14 GMT, but still lower than $1,493 on Monday.

The metal, used in transport, power, construction and packaging, has come under pressure in recent weeks on negative data from the slowing car industry. “Everybody is worried about the auto industry and stocks are coming into the exchange at a pretty relentless pace," North said. By the year end stocks could reach two million, he added.

Aluminium stocks rose 10,100 tonnes to 1.943 million tonnes, the highest level since November 1994, highlighting sluggish demand. Copper for three-month delivery eased to $3,065 from $3,170 at the close on Monday. Earlier it hit a low of $3,034 a tonne, down 4.3%.

Prices of the metal have fallen about 65% since a record high of $8,940 in July. LME stocks jumped 3,800 tonnes to 318,625 tonnes, its highest since early 2004. Sluggish demand would keep prices depressed for well over a year, Bart Melek, global commodity strategist with BMO Nesbitt Burns, said in a report. “Beyond 2009, low interest rates and aggressive government spending (coming from China and likely from G-7) are projected to place demand growth on a firmer footing." BMO forecasts copper prices to average $3,307 a tonne in the next three months, $4,079 for all of 2009 and $5,512 in 2010.

The dollar fell to a two-month low against the euro as expectations mounted that the Federal Reserve will cut interest rates to near zero later in the day.

Usually a decline in greenback supports dollar-denominated assets such as base metals by making them cheaper for holders of other currencies, but recently this has not had much effect on metals.

“It’s a little disappointing that the dollar has gone from $1.25 to $1.37 against the euro in the space of a week or so, and had such little impact on metals," ANZ senior commodities analyst Mark Pervan said. “The focus remains on the data. We had another batch yesterday that was pretty awful which makes it hard to see a rebound in the near term. Every time the market gets back on its feet, it gets knocked down again."

Pervan said a lot of downside risk had been priced into base metals, and the wider commodity complex, and expected prices to trade sideways until the end of the year unless the dollar sees a reversal of fortune, which would seriously undermine prices. Data on Monday showed US November industrial output fell 0.6% versus October’s 1.5% rise, and there remain worries about the fate of US auto makers after lawmakers last week failed to agree on a rescue plan.

The Bush administration could act as early as Wednesday to approve an auto maker bailout from its bank rescue fund, key lawmakers and other sources said on Monday.

Nickel fell to $9,900 a tonne from $10,225/10,250 at close on Monday, lead was at $995 from $1,025/1,026, while zinc gained to $1,085 from $1,070/1,080. Tin traded lower at $11,150 versus $11,400.