Several commodity items from the base metals segment experienced a slight advance on last trading at the London Metals Exchange on sustained demand pickup and enhanced buying behaviour from investors.

Investor speculations have improved on news that Chinese steel factories are now experiencing gradual stabilisation after minor improvements in the economy in the past few days. Add to this is the upcoming Golden Week holidays, which saw China-based investors taking off from joining the bourse that sparked short-coverings from other investors.

“The upcoming week-long Chinese holiday beginning on Thursday is likely to increase volatility in the absence of liquidity,” a trader told FastMarkets.com.

Copper recorded an impressive hike at US$5,204 per tonne, up by almost US$44 on Wednesday trading. However, stocks at warehouses declined by a net 3,400 tonne to 320,400 tonne, the sharpest decline since the last trading sessions in June, leaving cash/threes spread a US$15.75 backwardation.

At early trading, aluminium started off recording a US$2 of US$1,600 increase but closed slightly lower at US$1,590, but still up by US$23 from Wednesday session. Inventories suffer a sharp fall from 7,775 tonne to 3,179,225 tonne.

Zinc and lead improved at US$26.50 and US$1,679, respectively. The former’s price was considered its best performance since January, giving it a 7,775-tonne jump in stocks to 596,025 tonnes. However, inventories for lead declined by 925 tonnes to 162,425 tonnes, the lowest since mid-June trading.

Tin remained flat at US$15,525, with inventories down by almost 25 tonnes at 4,800 tons. Nickel, the best performing industrial metal of the session, continued to surpass the US$10,000 mark at a “session peak” of US$10,595. Stocks also increased by 564 tonnes to 452,634 tonnes.

US$1 = AU$1.42

Base metals’ quandary

The segment remains the worst performing commodity sector on the global market, and a potential recovery remains a matter of debate among economists and analysts. In the second quarter of 2015, the segment’s weakest, the overall sector of metals traded on LME was down 6.18 percent due to the market rout in China and the unprecedented stability of the U.S. dollar against other major currencies.

“In July, when Chinese domestic equity prices plunged, the government introduced new rules and regulations to inhibit or ban selling and encourage or demand buying. The rest of the world has depended on Chinese growth for years now, and a slowdown in that economy has resulted in difficult circumstances around the world,” Technomentals commodities analysts Andrew Hecht said.

The recent rout, however, has to some degree benefited small and upcoming market players like Amur Minerals Corporation (London AIM: AMC), which chose to enhance its operations and facilities first before selling its products on the global market.

Unlike other giant mining companies, Amur has managed to record relatively high and decent stock prices amid precarious market prices. Investors still look at the company as among the companies that could dominate the supply segment in the near future. The company has gained immense attention from industry giants, economists and investors for its work on the Kun-Manie Reserve, one of the largest nickel mining facilities today, which has a projected ore reserve of 90 million tonnes.

Cash prices on the London bourse is also threatened by LME’s plan to alter position limits by introducing new contracts in November.

“Because with these new contracts will come position limits. There are perfectly reasonable grounds for limiting the size of trading positions on these particular products,” revered market analyst Andy Home wrote on Reuters. “What this means is that liquidity squeezes can in theory occur on any single day, potentially distorting the cash price, which is used as a pricing benchmark by much of the world's metals industry.”

But he said that since this sounds inevitable, the ball is in the bourse’s officials now: they have to manage the new rulings well to protect the investments, the investors, let alone the relevance of the exchange itself.

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