LME MORNING - Prices tick over but lack direction despite more upbeat sentiment

By: Kathleen Retourne

London 10/10/2011 - Base metals continued to trade sideways during LME premarket trading on Monday around Friday’s closing levels, with a quiet day expected while the US is out on a national holiday today.

“Prices will pretty much lack direction until the US returns tomorrow,” said a trader. “Copper closed positively on Friday above… $7,090 per tonne, so sentiment appears constructive for now.”

Fitch Ratings' debt downgrade of Italy and Spain saw prices drop on Friday evening - the ratings agency the company slashed Italy's foreign and local currency long-term Issuer Default Ratings (IDRs) - to A+ from AA. The outlook on the long-term ratings is negative.

Spain’s IDRs were downgraded to AA- from AA. The rating outlook is also negative.

While prices dipped on this news, it seemed much of the market's attention was focused on the US jobs data, which came in better than expected. Non-farm payroll employment edged up by 103,000 in September, easily beating expectations of a gain of 55,000 jobs.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said on Sunday that new steps to resolve the European debt crisis will be announced at the end of the month, while agreeing to recapitalise European banks, which offered support to prices

“But the early indications are that Europe is more upbeat - seemingly taking some comfort from the pledge by Merkel and Sarkozy to come up with a plan by the end of the month to recapitalise the banks, stabilise Greece and fix Europe’s economic governance,” FastMarkets analyst William Adams said.

In metals-specific data, Credit Suisse said that weekly inventories at the Shanghai Futures Exchange registered outflows across the board, pointing at resilient demand in China. The market is generally pinning its hopes on demand from Asia and North America offsetting any slowdown in Europe.

“On the supply side, several producers reported that in some metals - notably aluminium and nickel - a sizable share of global production is close to breakeven or loss-making at current prices. Hence, there should be a limit to the price downside,” Credit Suisse added


Copper was recently $11 higher at $7,386 per tonne. Warehouse stocks fell a net 4,575 tonnes to 462,525 tonnes. Cancelled warrants were up 2,200 tonnes to 52,625 tonnes, which could support prices.

The LME/Shanghai arbitrage is just open, with imported copper at a small discount to Shanghai prices.

Aluminium inventories dropped 4,000 tonnes to 4,544,725 tonnes, the lowest since August 2008, while cancelled warrants increased 600 tonnes to 238,250 tonnes. Prices crept up to $2,229, an increase of $1.

Zinc stocks were at their lowest since April 19 at 806,475 tonnes after a fall of 1,450 tonnes but cancelled warrants at 72,975 tonnes were down 3,825 tonnes. At $1,937, the metal is up $17 on Friday's close.

Lead stocks reached an all-time high, hitting 382,000 tonnes, an increase of 1,600 tonnes, while cancelled warrants rose 200 tonnes to 7,200 tonnes. Prices at $1,960 were up $16.

Nickel gained $69. Inventories at 93,366 tonnes were down 900 tonnes, while cancelled warrants dropped 252 tonnes to 6,210 tonnes.

Meanwhile, tin stocks fell 495 tonnes to 19,795 tonnes and cancelled warrants were also down, dropping 505 tonnes to 3,985 tonnes. Tin at $23,000 was up $100.

Steel stocks were at their highest since October 13, 2010 at 64,090 tonnes due to the warranting of 11,050 tonnes in New Orleans. Prices at $540/560 were down $10.

 In the minor metals, cobalt was recently quoted at $30,000/32,500 and molybdenum at $28,000/31,300.

(Editing by Mark Shaw)