LME MORNING - Metals lose ground, pressured by sagging euro and equities

London, 07 July 2010 - Base metals fell away during Wednesday LME morning trading, with the upbeat mood and momentum of the previous session dissolving in the face of a pullback in the strong euro and softer equity markets.

Copper, which had climbed to levels of some $6,666 on Tuesday, the highest for a week, was threatening to test the $6,500 per tonne level.

Today's warehouse inventory report was mixed as well, which further dampened the mood - there have been across-the-board stock falls in recent days.

"We are wary of yesterday’s show of strength across the base metals. The charts generally remain in consolidation mode but, given the economic outlook, we feel the risk lies to the downside," William Adams of FastMarkets said.

Despite the retracement in the metals from Tuesday's strong levels, prices are still ranging fairly comfortably above the recent sell-off lows, others said. This broadly sideways pattern may continue.

"The general backdrop for industrial metals is... fairly supportive for the medium term. Inventory levels are falling in most markets, indicating tightening supply/demand balances," broker Credit Suisse said.

The rebound in world stock markets on Tuesday, which had been propelled by bargain-hunting and the subsequent flurry of risk appetite for commodities, turned out to be short-lived, with worries that global growth is faltering again prevailing.

Equity markets in Asia were softer, European shares were running losses in excess of one percent and stock index futures suggested a lower start on Wall Street.

The US data flow is again light today, meanwhile. The euro, which hit its highest for some seven weeks on Tuesday around 1.2662 against the dollar, settled back under 1.26 to trade at some 1.2570.

The softer tone in the complex also reflected positioning ahead of the July traded option declarations at late-morning, with more puts than calls in play at the at-the-money strikes.

In copper, the July date is homing in on $6,500, where there are 2,647 lots of puts, as opposed to just 524 calls, open. Aluminium is gravitating towards $1,950, where 1,657 lots of puts and 650 calls are open. Similarly, zinc is near $1,800, where 3,198 lots of puts dwarf the 105 calls.


In the metals, copper, which had risen more than two percent on Tuesday, buckled below $6,600 to trade at $6,535 per tonne, a $69 loss from the previous close.

Warehouse inventories notched up a net 2,350-tonne decline after the 14th successive daily fall, which reduced the stockpile to 439,350 tonnes, the lowest since late November 2009. Since peaking at 555,075 tonnes in mid-February, which was the highest since late 2003, stocks have fallen 21 percent.

"Demand for copper is also good in Europe and Japan but fears about the macro-economic outlook are holding back strong gains," LME ring dealing member (RDM) Triland Metals said. "This hesitant mood could linger for a while."

Aluminium, which again met stout resistance at the psychological $2,000 per tonne level in the previous session, was $18 lower at $1,975 - a short-term chart pivot level.

There was an unusual stock increase - declines are usually only halted in the week when the monthly 'third Wednesday' date becomes prompt. Today, stocks rose a net 4,700 tonnes to 4,409,550 tonnes. There was, however, a 2.8 percent jump in cancelled warrants - stock booked for removal.

Nickel traded at $18,900, a $100 loss, although it was above its lows. Stocks fell for the 21st day in a row - down 456 tonnes at 121,716 tonnes, the lowest now since mid-October 2009.

Lead eased $17 to $1,763, with stocks rising 500 tonnes to 189,850 tonnes, bringing an end to a three-day mini-run of withdrawals. Zinc traded at $1,828, a $22 loss - there was a 25-tonne or one-lot fall in stocks to 616,575 tonnes.

Tin eased $202 to $17,398, with a 19-day run of stock falls ending - inventories rose 55 tonnes to 16,820 tonnes from what were their lowest since June 2009. In steel, Med billet was $410/426 against a previous $430/435 - stocks rose a net 260 tonnes to 28,860 tonnes.

The minor metals were neglected, with cobalt and molybdenum inventories static at 157 tonnes and 186 tonnes respectively. Cobalt was quoted at $37,500/41,800 per tonne and molybdenum at $27,500/33,000, both unchanged.

(Editing by Mark Shaw)