LME MORNING - Base metals in slight recovery, market expected to remain volatile

By: Kathleen Retourne

London 16/04/2013 - Base metals started to crawl back from the previous day’s lows, tentatively moving higher in a high volume LME premarket - by 10:50 BST some 28,000 lots had changed hands on Select.

Prices were holding above Monday's sell-off lows, when copper and aluminium dived to 18 and 30-month lows respectively - the rest of the complex slid to levels last seen in the latter half of 2012. In the short-term, however, prices will be susceptible to sudden swings, they said.

"We would expect volatility to remain elevated for the next few days as positions are adjusted and attacks are made on stops - both upside and downside," broker RBC said.

The sell-off seen on Monday that started on Friday has left sentiment slanted towards the downside, with wider macro-economic fundamentals providing a challenging backdrop.  Soft data from the US last week, China's weekend first quarter GDP reading, which was below expectations, and ongoing European debt concerns suggest that prices are set for a further bumpy ride.

“Expect bargain hunting today, but at some stage there may well be some retests of yesterday’s support levels and how the market handles them will give us insight into whether recent weakness was the start of a more meaningful downtrend, or whether it was the panic sell-off that has now cleared the market of nervous longs,” said FastMarket analyst William Adams.

"Given the percentage falls, we would expect the lower prices to attract some genuine trade buying interest."

“We would expect volatility to remain elevated for the next few days as positions are adjusted and attacks are made on stops (both upside and downside). Many are saying commodities as an asset class are no longer attractive and gold is no longer a haven of value for the currency markets. If those two things hold true, then we are in for further pain in the short to medium term as a freight train of selling interest is just pulling out of the station added RBC.”

Eurozone data this morning was mixed. Italian trade balance surprised to the upside at a 1.09 billion euro deficit, while EU core CPI at 1.5 percent was also higher. EU CPI was as expected at 1.7 percent, but German ZEW economic sentiment disappointed at 36.3 against a forecast of 24.9.

In currencies, the euro was steady around 1.3082 against the dollar.

Afternoon figures centre on March US building permits and housing starts, the March US CPI, and March US industrial production and capacity utilisation rates.

TENTATIVE RISE

Copper was up $68 on the previous day’s close to $7,270 per tonne. Volumes remain chunky, by 10:40 BST 12,800 lots had changed hands on Select. By the 17:00 close yesterday, copper volume was in excess of 40,000 lots, which according to a RBC Capital Market report was the third highest volume day for copper. The largest volume day for copper on the Select platform took place on 23 September of 2011 when 46,122 lots changed hands online.

Meanwhile, stocks were up for the sixth consecutive day, rising a net 750 tonnes to 611,925 tonnes, due to a 3,375-tonne increase in Johor and 1,875-tonne rise in New Orleans. Cancelled warrants were down 1,275 tonnes to 155,375 tonnes.

Refined copper production from the Kennecott Utah copper mine at Bingham Canyon this year will be 100,000 tonnes less than originally estimated, due to last week's pit wall slide, owner Rio Tinto said on Tuesday.

Refined copper production in 2012 at Bingham Canyon was 163,000 tonnes, a 24 percent decline from 2011.

“The effects of last week’s wall slide at the Bingham Canyon copper mine in the US are evidently more severe than initially assumed,” said Commerzbank. “If production indeed comes to a standstill for any prolonged period, this could also have an impact on the global market, as the production shortfall could significantly reduce the supply surplus anticipated for this year. Coupled with potential production problems elsewhere, the global copper market would then be considerably tighter than previously expected.

Aluminium at $1,891 was up $25 - yesterday it was the only metal to close in positive territory as technical selling ran out of steam. Inventories were up 6,675 tonnes to 5,199,000 tonnes and cancelled warrants fell 8,075 tonnes to 2,025,475 tonnes.

Lead rose $22.75 to $2,055.75, despite a 650-tonne increase in stocks to 259,675 tonnes. Sister metal zinc at $1,893.50 was up $24.50, with inventories down 4,300 tonnes at 1,127,175 tonnes and cancelled warrants at 648,825 tonnes fell 1,525 tonnes.

Nickel was just $9 higher at $15,709, while stocks were down for the second consecutive day at 168,594 tonnes – a 168 loss. Cancelled warrants were up 1,206 tonnes to 25,056 tonnes. Tin at $21,450 was up $400, although it saw a 265-tonne increase to 14,670 tonnes and cancelled warrant at 2,835 tonnes were down 80 tonnes.

Steel prices were neglected and stocks and cancelled warrants were both down 65 tonnes at 77,805 and 44,395 tonnes respectively. Cobalt was indicated at $25,800/26,500 and inventories and cancelled warrants fell 15 tonnes to 431 tonnes and 153 tonnes respectively. Molybdenum was neglected.

(Editing by Martin Hayes)

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