By: Kathleen Retourne

London 22/10/2012 - Base metals were off their earlier lows but remained in negative territory on Monday morning while investors remain cautious given the uncertain economic backdrop.

Sentiment soured when a Chinese central bank advisor warned on Friday that strong acceleration in growth was unlikely as was a major stimulus package from Beijing.  This morning, worries over China's growth outlook, disappointing corporate earnings and negative data from Japan all combined to push equities lower and keep metal prices under pressure.

“Overall sentiment has been knocked by further concerns of China's ability to sustain growth, although data last week was largely as expected,” a trader said.

This offset good news from Spain, where Prime Minister Mariano Rajoy won a boost for his austerity drive with a regional election victory in Galicia on Sunday, which was seen as removing a hurdle for Madrid to apply for international aid.

As a result, the euro rebounded to 1.3054 against the US dollar after selling off for two days last week when Spain worried investors by not requesting a bailout at a European Union summit. The euro remains below its September peak of 1.3173.

“[There was] better news from Spain this morning with regard to austerity measures, [which] has seen a small bounce from the lows. Copper and aluminium are trading in and around important technical indicators; euro activity will play an important factor in these levels,” the trader added.

Trading volumes should increase this week - a change from the thin conditions that typify LME Week here. Indeed, around 7,100 lots of copper have already changed hands on Select so far today.

Little data is due later today but later this week the US Federal Reserve holds a policy meeting on Wednesday; no significant action is expected. Third-quarter US GDP on Friday is likely to show a modest acceleration from the second quarter.


COPPER FLIPS AROUND $8,000/T

A stronger euro helped push copper back above $8,000, but at $8,012.25 per tonne it was still down $2.75 on Friday’s close.  The LME/Shanghai arbitrage window remains closed but the differential has narrowed; if it continues to do so, it could prompt some Chinese buying.

Stocks rose a net 1,525 tonnes to 222,425 tonnes and cancelled warrants dropped 950 tonnes to 37,175 tonnes.

Aluminium at $1,962.50 was down $7.50 on Friday’s close. Warehouse stocks were up a net 23,750 tonnes at 5,062,875 tonnes, with Vlissingen stocks up 22,950 tonnes at 1,282,700 tonnes and Antwerp up 5,350 tonnes at 123,375 tonnes. Cancelled warrants at 1,762,425 tonnes are at their highest since July 18 after a 24,000-tonne rise in Vlissingen to 868,200 tonnes.

Lead lost $16 to $2,099. Inventories rose 6,500 tonnes to 1,114,425 tonnes after Antwerp stocks climbed to 75,175 tonnes, while cancelled warrants declined 1,525 tonnes to 109,525 tonnes.

Zinc was down $4 at $1,881, while stocks fell 1,650 tonne to 1,114,425 tonnes due predominantly to drawdowns in New Orleans. Cancelled warrants were down 1,725 tonnes at 373,875 tonnes.

Nickel at $16,783 fell $172, with stocks down 366 tonnes at 127,134 tonnes and cancelled warrants down 1,056 tonnes at 11,490 tonnes.

Tin was $235 lower at $21,040 after inventories increased in Port Klang and Singapore, lifting the total to 11,755 tonnes. Cancelled warrants slipped five tonnes lower to 4,040 tonnes.

Steel was soft at $325/375 despite an 845-tonne drawdown in stocks due to cancellations in Antwerp. Total stocks and cancelled warrants now stand at 116,675 tonnes and 66,820 tonnes respectively. In the minor metals, cobalt was quoted at $26,000/29,000 while molybdenum was neglected.


 (Additional reporting by Perrine Faye, editing by Mark Shaw)