LME MORNING - Base metals weaken ahead of US jobs data, stock builds constrain copper and aluminium

By: Fastmarkets Ltd

By Tom Childs

London 06/07/2012 - Base metals turned lower during Friday morning trading when macroeconomic uncertainty weighed ahead of the release of closely watched US jobs figures this afternoon

Following European Central Bank (ECB) and Bank of England (BoE) policy announcements yesterday, currency markets provided little incentive for trade, with the euro trading around 1.2388 against the dollar, just above Thursday's one-month lows.

Base metals have been taking their cues from wider macroeconomic concerns this week into the seasonally quiet third quarter where already weak fundamental demand has thus far failed to bolster last week's end-of-half relief rally.

"The market is very quiet this morning after it was left chasing its own tail yesterday - there was a paralysis of analysis," Leon Westgate, analyst at Standard Bank, said.

Central banks were the main price drivers yesterday, when the BoE's expected announcement to reignite its purchasing programme with a 50 billion pound package ($78 billion) was followed up by surprise rate cuts by the ECB and the People's Bank of China (PBoC.)

"Base metals initially rallied off the news but then seemed to run into a metaphorical wall when attention turned to the European Central Bank's announcement on the minimum bid rate," FastMarkets analyst Jono Remington-Hobbs said.

The ECB was widely expected to cut its refinancing rate by 25 basis points to a record low of 0.75 percent, and did not disappoint. But it also dropped the floor of its overnight money market rate to zero.

The PBoC, meanwhile, delivered an unexpected cut in interest rates in China, the second time it has done so in a month.

"China didn't greet yesterday's interest rate cuts with much enthusiasm so metals are softer this morning and we've had very thin volumes over night," the Standard Bank analyst added.

Fears that the respective governments fiscal policies point towards slower than forecast global economic growth meant that market positivity on the figures was short lived.

Today's closely watched US non-farm payrolls report for June could therefore have greater importance than usual, with investors looking for clues of whether the Federal Reserve will be forced to intervene with more liquidity measures.

The US is expected to have added 97,000 jobs; any significant deviation from this number is likely to send markets scurrying.


Copper traded in the middle of its narrow intraday range at $7,649.25 per tonne, down $45.75. Warehouse stocks rose a net 1,725 tonnes to 254,450 tonnes, ending a four-day run of declines. There was a surprise 1,700-tonne inflow into Vlissingen - this location is being delisted as a delivery point for copper from July 25.

Aluminium lost $13 and was last at $1,931, with stocks rising 9,200 tonnes to 4,818,725 tonnes.

Aluminium is currently suffering from severe overstock and a benchmark price that is cutting into the cost curve. Recent government interventions in Australia and China have meant that production is not yet falling at a rate that would provide the necessary relief to the market.

In Europe, Bosnian aluminium producer Aluminij d.d. Mostar said it may have to implement production cuts because of high power costs.

Zinc gained $3 to $1,857 after stocks dropped 2,525 tonnes to 990,850 tonnes, while there was also a further fall in cancelled warrants to 204,550 tonnes.

Nickel last changed hands at $16,570, down $130, and lead was down $15 at $1,872. Tin fell $10 to $18,865, with inventories rising a net 130 tonnes.

Tin was quoted at $370/410, with stocks unchanged once more at 28,145 tonnes. In the minor metals, cobalt was indicated at $28,000/30,000 and molybdenum at $27,000/28,300. Stocks held at 355 tonnes and 264 tonnes respectively.

(Additional reporting by Eddie van der Walt, editing by Mark Shaw)