LME MORNING - Base metals slump as investors dump risky assets, euro drops to 21-mth low

By: Kathleen Retourne

London 23/05/2012 - Base metals fell on the LME on Wednesday morning when eurozone sentiment worsened, pulling down the euro and resulting in an exodus from risky assets.

Comments on Wednesday by former Greek Prime Minister Lucas Papademos that Greece had to stick with painful austerity measures or face a damaging exit from the eurozone ratcheted up risk-averse sentiment across markets, with the euro dropping to 1.2613 against the dollar, its softest since September 2010. It has since edged away from that 21-month low but remains under pressure at 1.2654.  

“Base metals are at the mercy of eurozone worries,” a trader said. “Failure to find a solution [to the debt crisis] will keep prices in check as a risk-off mentality prevails. Expect prices to trend lower in the short term.”

All eyes are now on Brussels where European Union leaders will gather later today to discuss how to revive growth in the bloc but France's push for a joint eurozone bond is already facing opposition from Germany. Investors are sceptical about the group coming to any agreement.   

EU current account data was better than expected at 9.1B against a forecast 4.7B and industrial orders also outperformed at 1.8 percent against an expected -0.1 percent and a previous -0.4 percent. But this did little to improve sentiment while Greek concerns weigh.

Later today US new home sales, house price index and crude oil inventories are due.


Copper dropped to a fresh four-month low, dipping below $7,600 to $7,590 per tonne. It was last at $7,606.50, down $132.50 on the previous day’s close. Volumes are comparatively high for this time of day, with 9,450 lots changing hands on Select so far.

The price drop was not helped by a 1,725-tonne stock increase, taking LME inventories to 225,700 tonnes. Increases were seen in Busan, Gwangyang and Vlissingen. Cancelled warrants at 28,725 tonnes were at their lowest since December 14.   

Aluminium at $2,020.25 gave up all of the previous week’s gains and was down $8.75. Inventories were down 5,025 tonnes to 4,952,975 tonnes, despite an increase in Busan stocks of 1,900 tonnes and in Gwangyang of 3,400 tonnes.

Cancelled warrants, meanwhile, jumped 46,200 tonnes to 1,732,725 tonnes due to a rise of 24,358 tonnes of metal booked for removal in New Orleans, while Vlissingen stocks jumped 27,775 tonnes to 836,100 tonnes.

Norwegian aluminium group Norsk Hydro said on Wednesday it intends to close the Kurri Kurri aluminium smelter in Australia, which has capacity of 180,000 tonnes per year, due to lower metal prices, the strong Australian dollar, continued weak economic conditions and the uncertain market outlook.

“It is clear that the plant will not be profitable in the short term with current market prices, while long-term viability will be negatively affected by a number of factors including increasing energy costs and the carbon tax,” Hilde Merete Aasheim, executive vice president of Hydro's primary metal business area, said.

Nickel fell to a near six-month low at $16,750 and was recently at $16,816 - still down $84. The export ban on nickel ores from Indonesia has had little effect on the market so far because of faltering demand. Stocks were down 564 tonnes at 105,168 tonnes, while cancelled warrants were little changed at 6,858 tonnes.

Zinc also dropped to its weakest since January 10 at $1,873 before recovering to $1,878, still down $33 on the previous close. Inventories were down 1,500 tonnes at 943,325 tonnes, while cancelled warrants jumped 11,275 tonnes, with 46,400 tonnes of metal now booked for removal in New Orleans, up 12,525 tonnes.

Lead at $1,930.75 declined $34.25 even after stocks fell to 353,450 tonnes, while cancelled warrants were at 75,050 tonnes.

Tin at $19,475 was down $230 and the weakest since January 4. Inventories declined 580 tonnes to 13,995 tonnes and cancelled warrants were at 5,175 tonnes.

Steel fell below $400 - it was recently quoted at $390/465 - while stocks were unchanged. In the minor metals, cobalt was indicated at $30,000/30,950 and molybdenum at $29,750/30,350.   

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