LME MORNING - Base metals track lower as euro softens

By: Kathleen Retourne

London 04/04/2012 - Base metals traded lower on Wednesday morning when a soft euro weighed on the complex.

The single currency dipped - it was last at 1.3166 against the dollar - after yesterday’s assessment from the Federal Reserve that the US economy is improving, which dampened the chances of further monetary easing.

The retreat in metal prices has come as little surprise to market observers, many of which believed that metals, in particular copper, had risen too high and too quickly, making a correction inevitable.

The disappointment over the FOMC minutes prompted a cross-asset sell-off, with gold, energy and equities slipping. Metals fell even though the Fed policymakers' stance that the world's largest economy is moderately improving and does not need looser monetary policy is ultimately positive for physical demand.

“Evidently investors have seen the publication of the minutes of the last Fed meeting as a good enough reason to take profits or indeed to generally dispose of their cyclical commodities,” Commerzbank said.

Attention has now turned to today's meeting of the European Central Bank, which is widely expected to keep its key interest rate unchanged.

The focus instead will be firmly on ECB president Mario Draghi's comments and outlook on the health of the eurozone economy, Credit Suisse noted. In particular, he is expected to address recent calls for a more precise exit plan from the ECB's large liquidity injection from the twin three-year Long Term Refinancing Options (LTROs).


Copper at $8,489.75 per tonne was down $125.25 on the previous day’s close. Warehouse stocks were down a net 975 tonnes to 259,675 tonnes, while cancelled warrants at 78,650 tonnes were also down, dropping 1,550 tonnes.

Aluminium earlier dropped to a fresh multi-month low of $2,102.50, its weakest since January 13, before recovering slightly to $2,105, still down $20. Stocks declined 6,500 tonnes to 5,064,600 tonnes - Vlissingen delivered out 3,000 tonnes in accordance with the new LME rules that came into effect on April 1. Cancelled warrants at 1,649,500 were down 6,825 tonnes.

Nickel put in a strong performance yesterday but has not been immune to the general downturn and is now back below $18,000 at $17,930, down $520 or almost three percent. Stocks were up 72 tonnes to 100,614 tonnes, while cancelled warrants at 7,836 tonnes were down 144 tonnes.

Lead business at $2,027.50 slumped $42.50. Inventories were down 2,000 tonnes to 374,300 tonnes, with 1,000 tonnes delivered out of Detroit and Singapore. Cancelled warrants were down 1,875 tonnes to 18,400 tonnes, 14,125 tonnes of which are booked for removal from Detroit.

“The high supply surplus on the global lead market may ease somewhat in the near future, though not on the back of increased demand, for many lead smelters in China have significantly stepped down their production in view of meagre profit margins and are carrying out maintenance work,” Commerzbank added.

Additionally, the Chinese lead industry will be subject to environmental protection inspections this year, which could result in temporary plant closures.

Zinc was back below $2,000 at $1,994, a $26 loss. Stocks were down 450 tonnes to 895,700 tonnes, while cancelled warrants at 10,350 tonnes were down 425 tonnes.

Tin stocks were stagnant at 13,285 tonnes, as were cancelled warrants at 1,080 tonnes. Business at $22,700 was down $325.

Steel was indicated at $507/515, while stocks continued to decline, falling for the 18th consecutive day to 37,700 tonnes. But offsetting this are cancelled warrants at 10,920 tonnes, down 1,625 tonnes.

In the minor metals, cobalt was quoted at $30,500/32,500 while molybdenum was neglected.

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