LME MORNING - Metals consolidate and slow as dollar selling abates

London 19/10/2010 - Base metals traded marginally higher on Tuesday morning, benefitting from bargain-hunters, but a more sombre mood has set in after an upbeat LME Week - many traders believe that a correction is imminent.

"There was a bit of a push last week to put on a show for LME Week and push to new highs," a floor trader said. “Talking around, it was almost too bullish, which is a bit dangerous. You don't stand in the may of a moving train, but a little bit of a correction is needed.”

Other market observers agreed, warning that the risks of a pullback are mounting, especially given the dollar’s firmer footing.

“We would keep a close eye on [the US currency] as any further strength could prompt profit-taking across the broader markets,” FastMarkets analyst William Adams said.

The dollar - which has regained strength in the past few sessions - slipped back to 1.3955 against the euro as traders looked for reasons to take profits on other currencies' strength in the run-up to this weekend’s meetings of G20 finance ministers.

On Friday, the dollar index hit a 10-month low against a basket of major currencies, while the greenback has been plumbing fresh 15-year lows against the Japanese yen.

The currency markets have been roiled on bets that an aggressive push by the Federal Reserve to revive the US economy via a second round of quantitative easing (QE2) could drive up inflation.

But while rumours mount that the Fed is on the verge of QE2, two important questions remain that no one is able to answer: how much and when.

Fears of a full-blown currency war erupting between countries as they attempt to boost export competitiveness persist. On Monday, US Treasury secretary Timothy Geithner vowed that the US would not devalue the dollar for export advantage, saying no country could weaken its currency to gain economic health.

Today’s economic data announcement schedule includes both housing starts and building permits at 13:30 BST, with economist expecting readings of 579,000 and 565,000 respectively.

Later this week, traders will also be focused on the September figures for Chinese fixed-asset investment and industrial production due on Thursday.

“Should the Chinese data also point towards further moderation in activity, the sector could see a short-term consolidation,” Commerzbank said.


TIN BULLS LEAD THE CHARGE

Tin traded at $26,650, in line with last night’s close, after hitting a fresh all-time high of $27,300 last week,

“We are unashamedly medium-term tin bulls,” analysts at ABN AMRO wrote in their October monthly commodities report. “The LME stands as the market of last resort and, in tin’s case, this has been realised, as there is little in the way of above-ground stocks of tin elsewhere.”

Stocks fell a net 55 tonnes to 12,470 tonnes today and are now at their lowest since July 2009.

“Exchange inventories are on a downtrend across most markets, indicating firming metals consumption,” Commerzbank said. “In this regard, the LME reported further stock draws across the board yesterday while supply in copper and tin looks particularly tight.”

Copper, which hit a fresh 27-month high of $8,492 in early trade, settled at $8,423, down $20, while stocks fell 500 tonnes to 369,950 tonnes, the lowest level since October 26, 2009.

Output from Chile, the world’s largest copper producing nation, in August was 465,500 tonnes, up 1.2 percent on the same month of last year, according to Cohilco, taking total output for the year to 3.53 million tonnes, up 2.2 percent.

Aluminium traded up $8 at $2,418. The industry appears to be undergoing two structural changes at present, according to Harbor Intelligence: the launch of aluminium exchange-traded funds (ETF) and China becoming at least a gradual but growing importer of primary aluminium.

Nickel traded at $23,950, up $140 from last night’s close. It hit $25,200 last Wednesday, its highest since early May.

Zinc traded up $21 at $2,446, while lead climbed $35 to $2,455 after a 675-tonne net rise in stocks to 198,300 tonnes.

Steel billet was indicated at $460/496 after stocks fell 1,455 to 57,915 tonnes. According to the China Iron & Steel Association (Cisa), China's steel production fell just three percent to 48.5 million tonnes in September from the previous month.

“Worth mentioning in this relation is that some of the just recently implemented energy-saving measures have obviously already been loosened gradually,” Commerzbank said.

In the minor metals, cobalt was indicated at $37,100/38,900 per tonne while molybdenum was indicated at $30,500/37,500.

(Editing by Mark Shaw)

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