London Metal Exchange aluminium and copper fell Wednesday following options expiry during an illiquid session but maintained trading ranges and were looking to the European Central Bank's interest-rate decision Thursday.
The ECB expected to lift its key refinancing rate a quarter percentage point to 3.5%.
The options expiry was most vital to aluminium given the market's large open interest centered on the $3,000-a-metric-ton strike price, with market talk focusing on participants attempting to force the price to that level.
In the event, LME 3-month aluminium only climbed to an intra-day high of $2,847.50/ton and was sold off before the kerb by commodity trade advisory funds, a trader said.
The dollar ticked higher against the euro to $1.3255, resulting in a more hesitant tone on the LME, but overall the market expected further bearish direction for the U.S. currency that would underpin metal prices.
"It's universally accepted that the dollar will go to $1.35 (against the euro). Its weak performance has already underpinned metals and will continue to do so," a trader said.
LME copper erased Tuesday's gains but maintained its recent trading range. Copper's next impetus would likely come from U.S. non-farm payroll data in absence of other fresh fundamentals news, analysts said.
Contract negotiations at Codelco in Chile launched this week with the three largest unions representing about 5,800 workers.
The world's largest copper producer has stockpiled enough copper to bridge supply shortfalls in case of a strike, Codelco said Wednesday.
If talks fall through, workers could walk off the job during the first week of January.
Other LME traded metals continued to outperform copper. LME nickel rose to level with Tuesday's record high of $34,450/ton.
Ongoing supply concerns continue to hover over the market, including the recent announcement by BHP Billiton that costs at its Ravensthorpe nickel project in Australia have increased by $860 million to $2.2 billion.
The market's outlook for 2007 will remain strong as China sustains strong growth and the rest of the developing world helps the global economy to grow at a still-high 4.6%, economist Bart Melek at BMO Capital Markets said. "We are again in an environment where demand will be outpacing supply for virtually every major metal," he said.
Positive fundametals have also served to decouple LME zinc from the larger futures contracts.
3 months metal (prices in dollars a ton)
Bid – Ask, Change from Tuesday PM kerb
Copper 6985.00-6990.00 Dn 200.00
Lead 1725.00-1730.00 Dn 5.00
Zinc 4430.00-4440.00 Up 70.00
Aluminium n/a -2780.00 Dn 60.00
Nickel 34200.00-34300.00 Dn 100.00
Tin 10700.00-10750.00 Up 75.00
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