LME MORNING - Base metals step back, caution returns to market

By: Kathleen Retourne

London 20/09/2012 - Base metals were down across the board in premarket LME trading on Thursday when the positive sentiment engendered by monetary easing petered out and an air of caution returned to the market.

Data from China and the eurozone disappointed markets this morning, and a softer euro - now at 1.2936 against the dollar - pulled down prices.  

Eurozone flash manufacturing and services PMIs for September both disappointed at 46.0, with manufacturing at a 39-month low. The German flash manufacturing PMI beat the expected 45.4 at 47.3, while the services PMI was back above 50 at 50.6. But the French manufacturing PMI was at its worst since April 2009, at 42.6, while the services component dipped to 46.1.

Still, the average yield on Spain's 10-year bonds dropped to 5.67 percent in today's auction from 6.65 percent at the previous auction and the bid-to-cover ratio was 2.8 times compared with 2.4 times previously.

And UK retail sales in August were better than expected although they dipped - they were down 0.2 percent, beating the forecast for a fall of 0.4 percent.

Meanwhile, China's HSBC Flash Manufacturing PMI for September - a measure of industrial activity at small- to medium-sized factories - came in at 47.8, still in contraction but showing greater stability after falling to a nine-month low in August at 47.6.

 "We feel that the Chinese economy will need to see further loosening of monetary policy, in conjunction with further talk of and approval of, new infrastructure projects for GDP growth to move back towards 7.6-8 percent in the fourth quarter.," FastMarkets said analyst Jono Remington-Hobbs.

Other data out today includes EU consumer confidence and the US leading Index and Philly Fed manufacturing index.

The rally in base metals triggered by announcements of looser monetary policy by central banks across the globe in recent weeks has faded. The Bank of Japan announced on Wednesday that it will increase its asset buying and loan programme by 10 trillion yen ($127 billion).

Its move also comes on the heels of recent major monetary easing announcements by the US Federal Reserve and the European Central Bank. Central bank accommodation is generally viewed as supportive of gold because it devalues paper currencies and leads to future inflation.


In LME stock movements, New Orleans was once again the focus for cancelled warrants, with large increases in zinc and aluminium. The latest cancellations there added 63 working days or three months to the queue, which now stretches to almost 200 working days or 10 months.

 Aluminium at $2,110 per tonne was down $28 on the previous day’s close. The 'TOM/Next' (tomorrow/next day) spread, which was in contango earlier, has since moved back into backwardation at $6.00/6.50.

Inventories were up 1,825 tonnes, with Rotterdam continuing its 3,000-tonnes-per-day rises - stocks in this location now stand at 582,800 tonnes - and Vlissingen up 3,950 tonnes.

Cancelled warrants were the key focus, however, jumping a further 45,825 tonnes to 1,650,300 tonnes. The New Orleans total rose 57,300 tonnes, with now just 500 tonnes out of a total of 153,000 tonnes available in this location.

 Zinc at $2,092.50 was down $31 after stocks jumped 59,725 tonnes to 980,050 tonnes due to a 25,000-tonne increase in Johor and a 36,275-tonne boost in New Orleans.

Cancelled warrants were also 97,175 tonnes higher at a fresh all-time high for the third consecutive day of 361,850 tonnes. The move was once again attributed to New Orleans, which rose 98,725 tonnes to 324,975 tonnes.

Until Monday this week, the zinc stored in New Orleans was mostly tied up in rent deals and was unavailable to market participants. But well-informed sources told FastMarkets that Glencore-owned Pacorini Metals decided to release the stocks due to the recent tightness in LME spreads.

Copper at $8,200 was down $150, while volumes picked up amid profit-taking. So far some 2,280 lots have changed hands on Select.

Inventories increased 7,775 tonnes to 220,350 tonnes due to a 5,425-tonne jump in Busan and 3,800-tonne rise in New Orleans. Cancelled warrants dropped 5,550 tonnes to 35,475 tonnes.

Lead at $2,234.25 was $36.75 lower despite inventories declining for the 10th consecutive day, down 2,075 tonnes at 283,875 tonnes, while cancelled warrants fell 2,125 tonnes to 99,925 tonnes.

Nickel fell $110 to $17,645 despite a 60-tonne decrease in stocks to 120,875 tonnes and a rise in cancelled warrants to 12,612 tonnes. Tin at $20,750 lost $650, with stocks unchanged at 11,966 tonnes and cancelled warrants 415 tonnes lighter at 6,295 tonnes.

Steel was soft at $325/347.50, with inventories and cancelled warrants stagnant at 50,115 tonnes and 16,900 tonnes respectively. In the minor metals, cobalt was indicated at $27,300/29,000 and molybdenum was offered at $26,000.

(Additional reporting by Perrine Faye, editing by Mark Shaw)