LME MORNING - Metals mostly steady, short-term sentiment helped by China manufacturing data

By: Martin Hayes

London 03/01/2012 - Base metals made a largely stable start to 2012 during Tuesday LME pre-market trading but, with conditions thin, prices gave back some early gains as initial follow-through buying faded.

"It is a bit slow and it may take a few days for trade and direction to pick up," a trader said.

Initially, copper and lead advanced to their highest for three weeks, while aluminium, nickel and tin were at their best for just more than a week.

Support stemmed from Chinese manufacturing data released over the weekend and an uptick in the euro - it was at some 1.30 against the dollar. Stock markets were also steadier, although the pace of trading was slow, with some centres still closed after the New Year holidays - the SHFE does not reopen until Wednesday.

"The better PMI data out of China is encouraging, which may well help give further lift to the metals in the short term," FastMarkets analyst William Adams said.

China’s official manufacturing PMI for December came in on Saturday at 50.3, which indicates a slight expansion in manufacturing activity. The market was expecting a slight contraction at 49.3.

Despite the firm trend, which followed the final pre-weekend session of last year, the complex remains prone to wide short-term price swings. Also, the eurozone sovereign debt turmoil remains unresolved.

"We find it hard to be bullish for the outlook for metals in the medium term - the situation in Europe is likely to get worse before it gets better and the risk of contagion is ever-present," Adams added.

Business flows are expected to be patchy for the remainder of this holiday-shortened week, although a flurry is activity is anticipated on Wednesday when January traded options are declared.

Later in the session US data will be released - the December ISM Manufacturing PMI and November construction spending figures are due.


COPPER BRIEFLY ABOVE $7,700, ALUMINIUM WAREHOUSE INVENTORIES HIT RECORD HIGH

Copper rose at one stage to three-week highs of $7,703 and then settled back to $7,657 per tonne, a $57 advance still from Friday's close. Warehouse stocks rose for the second day in a row - up a net 675 tonnes at 371,575 tonnes.

Aluminium initially traded at its best for just more than a week at $2,032 before easing to $2,022, up just $2. Inventories jumped a net 8,350 tonnes to a new all-time peak of 4,978,750 tonnes due to a 9,750-tonne warranting in Detroit.

In industry news, Rio Tinto locked out workers and started to cut production at its Alma smelter in Quebec after three months of labour talks broke down on New Year's Eve last week. It will start to shut down about a third of aluminium production.

Elsewhere, lead hit its best for three weeks at one stage near $2,056 and then backtracked to $2,036, up just $2. Stocks were down 1,350 tonnes at 351,725 tonnes. Zinc traded at $1,850, up $5 - inventories fell 1,400 tonnes to 820,300 tonnes.

Nickel was $50 lower at $18,600, with stocks rising 468 tonnes to 90,516 tonnes. Tin rose $185 to $19,385, while stocks were down 95 tonnes at 12,095 tonnes.

Steel was indicated at $510/545, while in the minors cobalt was quoted at $29,500/31,750.


(Editing by Mark Shaw)

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