LME MORNING - Base metals consolidate, price rallies meet resistance

By: Kathleen Retourne

London 05/02/2013 - Base metals followed movements in currency markets in Tuesday's premarket, pulling back from yesterday’s highs.

“Rallies are encountering resistance right now… as eurozone debt worries resurface. A pullback will not necessarily harm the chart picture unless more negative fundamentals appear,” a trader said.

The euro, which had fallen to 1.3456 against the dollar on worsening sentiment surrounding Spain, recovered to 1.3538 after better-than expected final services PMI data from both Spain and the eurozone.

The EU services PMI for January was still below 50 but at 48.6 was still up on the forecast of 48.3. Spain surprised to the upside at 47.0 against the forecast of 44.7, the Italian figure of 43.9 undershot the expected 45.9 but the UK reading of 51.5 was up strongly from 48.9 in December

While the Italian preliminary CPI was as expected at 0.3 percent, eurozone retail sales were disappointing at -0.8 percent.

Still, the euro is down from 14-month highs above 1.3711 hit on Friday, battered by fears that it have become overextended and while a political scandal rages in Spain.

Spanish Prime Minister Mariano Rajoy has faced calls to resign amid allegations that he and other top members of the Popular Party received illegal cash payments from a construction company in exchange for public contracts.

But positive technical signals and bullish momentum could reignite the metals rally should buyers in China seek to restock ahead of next week's Chinese New Year holiday, while follow-though could be provided by investors in the absence of Chinese market participants.

“We could see prices push still higher as we near the Lunar New Year holiday in China, with copper potentially rallying to $8,430 in the next week. However we don’t expect these gains to last and may see a retracement back to $8,150 soon after the holiday,” ANZ Research said in a note.


Copper shuffled off its lows but at $8,269 per tonne was still down $33 on the previous day’s close.

Inventories jumped a net 10,850 tonnes to 385,050 tonnes, the highest since December 12, 2011. The move was due to a 7,225-tonne increase in Johor and a 5,000-tonne rise in New Orleans. Cancelled warrants - metal booked for removal - fell 1,375 tonnes to 31,274 tonnes, the lowest since December 13.

Aluminium at $2,113.75 was up $0.50 while the backwardated structure in the forward spreads remains - June/July was last at $15/17 back, Sept/Oct was level and Dec/Jan is at $2.00/4.00 back. Stocks rose 4,850 tonnes to 5,158,200 tonnes, with increases in Singapore and Vlissingen.

Nickel declined $63 to $18,662. Stocks were marginally lower, down 72 tonnes to 150,834 tonnes, while cancelled warrants jumped 1,656 tonnes to a fresh all-time high of 26,100 tonnes due to increases in Johor.

Zinc was down $13.75 at $2,171 after inventories fell 2,375 tonnes to 1,199,675 tonnes and cancelled warrants dipped 1,700 tonnes to 662,750 tonnes.

Lead was last at $2,441.75, with stocks and cancelled warrants both down 72 tonnes at 290,000 tonnes and 155,500 tonnes respectively.

Tin was $78 lower - inventories fell 310 tonnes to 13,315 tonnes and cancelled warrants declined 580 tonnes to 2,590 tonnes.

Steel was last at $300/323 - stocks were unchanged for the 17th consecutive day. In the minor metals, cobalt was indicated at $25,000/26,450 and molybdenum was neglected. There were no changes in inventories in either.

(Additional reporting by Gregory Holt, editing by Mark Shaw)