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Industrial Metals Prices Slide

Posted on: Monday, 10 September 2007, 18:00 CDT

By LAUREN VILLAGRAN

NEW YORK - Industrial metals prices slid Monday as investors, eyeing volatility on Wall Street and an unexpected contraction in Japanese economic activity, grew uneasy about the health of the U.S. economy.

Elsewhere, energy prices had a late-day rally, while agriculture futures finished mostly higher and gold gained strength.

The Japanese government said overnight its gross domestic product fell 1.2 percent on an annual basis in the April-June quarter, a surprising contradiction of a preliminary estimate for economic expansion of 0.5 percent. The revision and an early decline on Wall Street further unnerved investors who have been worried about the pace of U.S. economic growth.

An economic slowdown could pose risks for base metals demand, and the prices of metals such as copper, zinc and nickel have suffered as a result. Energy prices sagged through much of August due to economic growth concerns but recovered in recent days on strong supply and demand fundamentals.

Overseas, base metals prices fell Monday as inventories of aluminum, zinc and nickel swelled. Chinese demand for industrial metals has been a major driver of higher prices. But an increase this year in Chinese exports of zinc has pressured prices; the China Nonferrous Metals Industry Association expects zinc production to rise by more than 20 percent in 2007, said BNP Paribas analyst David Thurtell in a client note. Zinc prices lost 4.3 percent at the close of the London Metal Exchange, bringing the year-to-date decline to 36 percent.

Copper prices sagged in London but turned higher on the New York Mercantile Exchange before the close. December copper edged up 0.45 cent to $3.256 a pound. Workers at Southern Copper Corp. mines in Peru are slated to strike on Wednesday but were in talks with management on Monday.

JPMorgan analysts said in a note Monday, "credit market stress and a U.S. slowdown will not hit commodities equally. Base metals and energy should fare the worst, and precious metals the best."

Many investors now expect the Federal Reserve to cut its benchmark federal funds rate at the central bank's meeting on Sept. 18.

Expectations for an interest rate cut have undermined the dollar, which could make dollar-denominated commodities more attractive to foreign investors. In particular, dollar weakness has bolstered gold as investors have sought a haven from inflation.

The gold extended its rally Monday after prices rose 4 percent last week. With the dollar falling against the euro but trading mixed against other major currencies, December gold rose $2.50 to close at $712.20 an ounce on the New York Mercantile Exchange. Gold broke through $700 last week as the U.S. dollar sank to 15-year lows against six of its most actively traded peer currencies, according to a Blanchard & Co. research note.

Silver and platinum prices slipped, meanwhile. December silver fell 6 cents to $12.70 an ounce, while October platinum fell $1 to close at $1,294 an ounce.

Energy prices spent most of the session on the decline, as the market priced in speculation that OPEC may go for an increase in crude output when the group meets on Tuesday. The Organization for Petroleum Exporting Countries, which produces about 40 percent of the world's oil, had long been expected to hold production levels steady at the meeting.

Expectations for continued shrinkage in U.S. crude oil and gasoline stocks supported higher crude prices. The Energy Information Administration reports petroleum inventories on Wednesday. Also boosting prices was news that Mexican pipelines were attacked early Monday by a militant group, causing explosions, fires and gas leaks.

Light, sweet crude for October delivery rose 79 cents to settle at $77.49 on the Nymex, while October gasoline futures slipped 0.78 cent to $1.9786 a gallon. Nymex natural gas rose 39 cents to settle at $5.891 per 1,000 cubic feet.

In Chicago, wheat prices surged Monday after the crop in Australia didn't get rain expected over the weekend, exacerbating concerns about global grain supplies. The price of wheat has climbed roughly 70 percent since May on an explosive combination of strong worldwide demand and shrinking supply. Foreign buyers have been undeterred so far by the sharp run-up in prices, as countries - worried by this year's paltry harvests in major producing regions - try to lock in supplies of wheat.

Wheat supplies worldwide have dwindled rapidly this year after crops in the U.S., Europe and elsewhere were damaged by poor weather. Now dryness is again plaguing Australia's crop and has hurt expectations for yields in that country.

December wheat gained 17.5 cents to settle at $8.61 a bushel on the Chicago Board of Trade. The price of wheat has climbed about $3.60 since April 30 and stands at all-time highs.

Corn prices slipped, meanwhile, while soybeans rose on the CBOT. December corn dipped 1.5 cents to $3.46 a bushel, while November soybeans added 12.75 cents to $9.18 a bushel.

Source: Associated Press/AP Online

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