LME MORNING – Base metals mostly tick up, volumes light and prices capped by impending ECB announcement

By: Kathleen Retourne

London 08/12/2011 - Base metals made small gains on the LME on Thursday morning, with prices drifting up from yesterday's close.

Business was quiet - traders preferred to wait on the sidelines ahead of the European Central Bank decision on interest rates this afternoon.

The euro, last at 1.3430 against the dollar, is also awaiting direction from the ECB interest rate announcement at 12:45 GMT - the bank is expected to announce a cut in interest rates, with most economists predicting a rate cut of 25 basis points.

Friday's eurozone summit will be the key focus, however, especially after ratings agency Standard and Poor's warned earlier this week of downgrades to eurozone nations if there is no satisfactory outcome.  While an ultimate resolution is not expected, decisive action is required, with the ECB insisting that governments restore investor confidence.

In a joint letter on Wednesday, French President Nicolas Sarkozy and German Chancellor Angela Merkel called for the 17 eurozone countries to have common corporation and financial transaction taxes.

"We would not be surprised by some bullish reaction if the ECB is seen to step in to help the market but activity will slow ahead of the EU summit once the market has adjusted to that, we feel," FastMarkets analyst William Adams said. "Prices are likely to be shunted around by the news flow."

Aside from the eurozone, this week sees key economic data from China, including November figures on consumer price inflation and industrial production. If the data fail to meet expectations, there is a good chance that China's central bank would swiftly announce another reserve requirement ratio cut and spur a rally in the metals complex.


MARKET QUIET

Volumes have been quiet, with less than 9,000 lots changing hands across the complex so far. Copper volume was subdued at 4,060 lots, with recent trade up $40 at $7,860 per tonne.

Warehouse stocks dropped a net 2,050 tonnes to 387,400 tonnes. Cancelled warrants, meanwhile, rose 300 tonnes to 24,725 tonnes.

Zinc was marginally higher, gaining $4 to $2,031. LME warehouse stocks saw a large net increase of 20,225 tonnes due to the warranting of 21,425 tonnes in New Orleans. Stocks are now at 758,200 tonnes, a one-month high, while cancelled warrants at 28,550 tonnes were down 1,075 tonnes.

"Xstrata said that low zinc prices are likely to lead to a supply shortfall over the longer-term," Credit Suisse said. "While this is encouraging, we would not get too excited about the sector's near-term prospects. We are still in an economic slowdown and the upcoming EU summit poses an important event risk."

Aluminium edged $12 higher to $2,090 despite support from declining inventories. These were down 2,950 tonnes at 4,546,050 tonnes, the lowest since November 14. Nickel also ticked higher, rising $80 to $18,330. Stocks at 90,348 tonnes were down 162 tonnes, while cancelled warrants increased 474 tonnes.

Lead remained the only metal in negative territory - at $2,140, it was down $8 on Wednesday's close. Inventories fell 1,075 tonnes to 363,325 tonnes and cancelled warrants dropped 825 tonnes to 44,150 tonnes.

Tin at $20,550 increased $40. Inventories were down 20 tonnes to 11,905 tonnes, the lowest since April 2009, and cancelled warrants increased 474 tonnes to 3,780 tonnes.  

"We are confident that the tin price will recover during the course of next year to $23,000, though the price of $25,000 demanded by Indonesian tin producers is very unlikely to be achieved," Commerzbank said.


(Editing by Mark Shaw)

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