METALS INSIDER: G20 spin sends bears reeling

-- Andy Home is a Reuters columnist. The opinions expressed are
his own. For more Metals Insider columns, top Reuters metals
stories and third party content, please visit the free Base
Metals Community website at ((www.metalsinsider.com)) --

By Andy Home

LONDON, April 6 (Reuters) - They came, they talked, they
issued a statement that had already been largely leaked to the
media.

Last Thursday's London meeting of the leaders of the 20
leading global economies was short on drama and short on detail
where it counted most.

The headline-grabbing trillion-dollar stimulus package was a
carefully-crafted construct to hide the yawning chasm between
U.S. and European approaches to re-firing the global economic
engines.

Even the by-now-customary protests were low-key by recent
standards, matching in functionality the less-than-glamorous
conference centre chosen as the venue.

Economists caution that only time will tell whether the G20
summit was a success or failure but in terms of its impact on
market sentiment, it has already scored high.

Maybe it was all that talk of a turning point (Barack Obama)
and a new world order (Gordon Brown). Maybe it was just the
realisation that the old G7 and its neat division of the world
between developed and developing economic powers had been swept
away.

Whatever it was, equity and commodity markets soared over
Thursday and Friday on the back of renewed confidence that the
world's political leadership really could, in their own words,
"bring the world economy out of recession and prevent a crisis
like this from recurring in the future."

BEARS SURRENDER

On the LME the charge was led by copper.

Three-month metal came within a whisker of the magic
$4,400-per tonne ($2 per pound) level on Friday and it has
already penetrated through there this morning.

But as the table below shows, the gains were widely shared
with the single, slightly curious exception of the Mediterranean
steel contract.

LME three-month valuations on Friday and weekly changes:

Close Chg on Week Pct Chg
Aluminium $1,481 +$61 +4.3
Copper $4,301 +$251 +6.2
Lead $1,315 +$35 +2.7
Nickel $10,930 +$1,230 +12.7
Steel FE $325 +$2.5 +0.8
Steel Med $307.5 -$35 -5.4
Tin $11,085 +885 +8.7
Zinc $1,370 +$20 +1.5

The relative out-performance by nickel reveals the true
nature of last week's upside surge.

Nothing has changed in nickel's underlying supply-demand
dynamics. What has changed is the previous huge legacy short
position held by technical funds.

Larger than on any of the other metals, it has now started
to be rolled back, the waves of short-covering feeding on
themselves in a reversal of the downside momentum that drew in
the black box traders during the closing months of 2008.

The same process is happening in aluminium, like nickel an
underperformer in Q1 and, like nickel, still displaying a
worrying tendency to increased supply-demand surplus.

In copper the bear fund retreat is almost complete. Indeed,
London locals thought they could discern another sort of bear
capitulation late last week. High open interest along the
calendar strip was symptomatic of a big industrial short
position being unwound, they suggested.

This across-the-board short-covering phenomenon is a classic
symptom of a bear market rally. For it to give way to a bull
market rally, there would need to be a consensus that the world
truly has reached a key inflection point rather than the
suspicion that markets have merely fallen prey to political
hype.

BI-POLAR WORLD

Strip away all the post-G20 talk of a new multi-polar world
and the industrial metals are still trapped in the old bi-polar
reality of China and everywhere else.

Chinese stocking, both at the commercial and the government
level, was the prime driver of copper's remarkable 31.6-percent
price gain over the first three months of this year.

The arbitrage window for profitable imports is still very
much open and while it is, more copper will flow through Chinese
customs.

So too will aluminium, alloy, zinc and lead, all of which
are benefiting from Chinese "strategic" reserve building.

Sceptics, of whom there are many, will question just what
China is going to do with all this metal, particularly since the
commercial stock-build seems to be happening in anticipation of
higher demand rather than in reaction to actual order flow.

Believers, by contrast, will pin their hopes that China has
already turned the corner and that the rest of the world is not
too far behind.

A sliver of evidence comes from the purchasing managers
indices for March, shown in the following graphic: