LME MORNING - Base metals pause for breath but mood remains cheery

Tue, Jul 27 2010, 09:46 GMT
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London, 27 July 2010 - Base metals were mixed during LME premarket trading on Tuesday, with copper marking time just below multi-week highs and others such as nickel hitting new peaks amid still-strong technical momentum and upbeat market sentiment.

Copper retreated slightly below $7,100 per tonne, pausing for breath after a 10-percent rally in just one week, while the rest of the complex kept edging higher - nickel hit fresh eight-week highs near $21,000, aluminium flirted with new two-month peaks and tin reached its best for almost 11 months before stabilising.

"The momentum is still there but, as always, you can't expect to go up in a straight line," an LME trader said. "You need fresh impetus to keep it going."

This impetus was lacking from the currency market today, with the euro seemingly struggling to break above 1.30 against the dollar - it was last around 1.2975 after nearing two-month highs at 1.3020.

"The euro/dollar really needs to break through 1.30 to see what has so far been a technically driven rally in base metals continue," another LME trader said.

"We would expect the buying to continue for a few more days, but unless we see a sustained move though 1.30 in the euro, we think the recent rally is fast going to run out of steam," he added.

In other financial markets, European shares rose 0.6 percent after strong results from UBS and in-line pretax profits from Deutsche Bank reassured investors whose confidence had already been boosted by the encouraging outcome of the European bank stress tests on Friday - only seven of 91 banks failed the tests.

In other news, Norwegian aluminium producer Norsk Hydro reported stronger-than-expected second-quarter earnings but BP was hit by a charge of $32.2 billion for the Gulf of Mexico oil spill that drove it to a quarterly loss of $16.97 billion.

Overall, sentiment across financial markets remained upbeat following a surprise pick-up in US home sales on Monday, with investors now turning their attention to further US data including consumer confidence for July and the S&P/Case-Shiller 20-city home price index today and durable goods orders on Wednesday.

The fundamental picture also remained bright for base metals - supply has tightened for the likes of copper and aluminium despite the seasonally slow summer period, resulting in persistent stocks declines.

"Our fundamental view remains constructive," Credit Suisse said. "Falling inventories suggest rising demand and the persisting price spread between London and China should spur robust trade flows. Nevertheless after the recent strong performance, markets are likely to at least run into some consolidation."

COPPER TAKES A BREATHER

Copper was $68 lower at $7,080 per tonne amid slightly overbought conditions, with a slight retracement towards the 200-day moving average (DMA) of around $7,000 seen possible. For now, the red metal is holding above its 100 DMA of around $7,070 after hitting a 10-week high of $7,149 on Monday, so upside potential remains.

Copper stocks recorded another counter-seasonal outflow, pointing to stronger physical demand than is usual at this time of the year, when factories tend to close for annual maintenance and holidays.

Stocks fell a net 2,475 tonnes overnight to 413,800 tonnes, a fresh low since mid-November 2009, although cancelled warrants - the metal earmarked for removal - dropped a further 8.4 percent or 2,800 tonnes.

Nickel hit $20,975 per tonne, its best since June 1, before settling at an unchanged $20,800 after inventories fell for the 35th session in a row - down a net 312 tonnes to 115,950 tonnes, their lowest since early September 2009. It shrugged off bearish reports of slowing stainless steel demand and news that the year-long strike at Vale's massive Sudbury operations has ended.

Other metals held steady. Lead, which is starting to look heavily overbought, gave back $9 to $1,999 after touching a fresh 10-week peak of $2,018. Stocks rose a net 375 tonnes from what was their lowest level since early May, while cancelled warrants dropped 45 percent they - have now plunged 63 percent in one week.

Tin was flat at $19,500 after hitting a new high since September 2008 earlier at $19,800, with overbought conditions also evident here. Stocks fell a net 22 tonnes to 15,150 tonnes, their lowest since June 2009.

Aluminium was up $5 at $2,060 per tonne, holding close to last week's two-month high of $2,070, helped by a 4,875 tonne net stock decline and Hydro's solid demand outlook - the Norwegian producer maintained its forecast for a 12-percent demand growth this year.

"Aluminium appeared less moved to positive macro news though compared to copper and could as a result lose its momentum," broker Triland said. "It is not given yet that Ali will be able to overcome its long-term moving averages."

Both the 100 DMA and the 200 DMA are located in the $2,110-2,120 region.

Zinc tracked copper slightly lower to trade at $1,938, down $17, while Med steel billet was last indicated at $455/470, down $5, ahead of the merger of the LME's Far East and Mediterranean contracts on Wednesday.

LME-listed billet inventories rose another 1,560 tonnes to a fresh record high of 56,355 tonnes amid rumours of continuing warranting against delivery of a forthcoming short position.

The minor metals were again neglected - cobalt was unchanged at $37,000/38,500 per tonne and molybdenum was up $1,800 at $31,300/33,000.

(Editing by Mark Shaw)

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