Wed Jun 20, 2012 2:10pm EDT
* 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 finances.
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