LME MORNING - Metals take a beating as dollar soars

London 07/01/2011 - Investors dumped base metals and other commodities on Friday as the dollar continued to rise against a global basket of currencies, while trading was choppy ahead of this afternoon’s critical non-farm payrolls report.

Three-month LME copper traded as low as $9,300 per tonne, down almost $500 from Tuesday’s record high, while the rest of the complex was pressured by the euro’s fall to its lowest in four months against the dollar amid lingering concerns over the eurozone's sovereign debt problems.

A host of European data due for release but US non-farm payrolls will be the pivotal report for investors, with economists expecting the number to provide more evidence of a stronger US recovery, with 150,000 jobs created in December.

“Further choppy trading looks likely while the market decides whether good US economic data will encourage more money into metals - or will it attract profit-taking in metals and a shift of money into equities?” William Adams, analyst at FastMarkets, said. “Good data is also likely to boost the dollar further, which could curb any rebound in metals.”

Traders began to buy up the dollar after Wednesday’s macroeconomic figures showed that service industries in the US expanded in December at the fastest pace since May 2006 and employment expanded at triple the rate of analysts’ estimates.

Still, the employment situation in November ended up being a large disappointment, with payrolls rising only 39,000 during the month after an increase of 172,000 in October, even after markets were teased by strong employment indicators from jobless claims and ADP employment reports.

Aluminium was the only metal to escape profit-taking yesterday, climbing above the $2,500 mark for the first time since 2008.

“Some market players evidently regard the current price of aluminium as too low compared to other metal prices,” Commerzbank said.

Lead also hit a two-year high on Thursday - production from Australia’s Magellan mine remains interrupted on government orders after inspections found airborne lead particles in shipping containers

In news, LME copper trading surged 24.5 percent in 2010 to 827 million tonnes as prices for the metal shot to a fresh record on tightening supplies and widespread investor enthusiasm.


RALLY RUNNING OUT OF STEAM?

The combination of a stronger dollar and improving macroeconomic variables has analysts and traders questioning whether the price weakness is temporary or if the metals rally has simply run out of steam.

“Logically, good data is good for metal demand but because so much of the run-up in metal prices over the past six months has been led by investment, one could argue that investors have ridden the commodity wave and are now looking to gear up into equities,” Adams said.

Copper traded at $9,330 after closing at an indicated $9,470/9,475 on Thursday, while stocks climbed for the 17th straight session to 379,525 tonnes, the highest since September.

In news, the union at Peruvian copper mine Cerro Verde plans to strike for better benefits from January 14, labour leader Leoncio Amudio said on Thursday.

Aluminium gained $55 to $2,518. Aluminium stocks reverted to a downtrend, falling 2,475 tonnes to 4,272,400 tonnes, but there was an 18-percent drop in cancelled warrants to 158,100 tonnes due to some 32,000 tonnes of previously cancelled metal being rescinded in Detroit.

Zinc traded at $2,399, down $56, while lead was $36 lower at $2,620 after touching an intraday high of $2,712.75 in the previous as supply concerns linger despite the fact stocks are at 15-year highs of 209,700 tonnes.

Nickel gave up $250 to $24,300 and tin lost $255 to $25,925 - stocks of the latter rose a net 150 tonnes to 16,705 tonnes, the highest since July 2010.

Steel billet was indicated higher at $586/591. In the minors, cobalt was indicated at $39,000/40,250, with no bids or asks for molybdenum.


(Reporting by Barbara Stcherbatcheff, editing by Mark Shaw)

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