LME MORNING - Base metals trade sideways, some bargain hunting expected

By: Kathleen Retourne

London 25/05/2012 - Base metals were steadier on Friday morning on the LME, with all bar tin extending gains or unchanged from yesterday’s closing levels. The euro is also sturdier but remains soft at just 1.2590 against the dollar while eurozone concerns continue to dampen sentiment.

The complex looks oversold, which could lead to some short-covering ahead of the weekend, traders said.

“Our view remains negative while demand side concerns weigh on prices. We expect bouts of pricing and bargain hunting to provide counter-trend moves along the way but overall expect prices to work lower,” FastMarkets analyst William Adams said.

Yesterday, poor data from the eurozone, in particular Germany, have fuelled concerns on the stability of the eurozone. Fears that it is now only a matter of time before Greece defaults or exits the eurozone - potentially causing debt contagion in Spain, Italy and Portugal - are also weighing heavily on sentiment.

Citigroup believes Greece will exit the eurozone by January 2013, it said yesterday - just seven months away

Eurobonds – or collectivising debt – are another divisive issue. French President Francois Hollande is championing the bonds, believing they would help stabilise the economy - they have also gained the support of Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy.

But German Chancellor Angela Merkel is unconvinced and is reluctant to underwrite other countries' debt.

Today, Italian retail sales data came in at -0.2 percent against a forecast of -0.1 percent, while GfK German Consumer came in at 5.7, in line with forecast and the previous revised figure.

Providing some lift are rumours that the European Central Bank (ECB) will announce a rate cut as early as June, although several market participants have questioned why it has not done something sooner.

Additionally, after a recent run of poor US data, market players are hoping for more monetary easing measures from the US Federal Reserve.

China could also announce further monetary easing after yesterday’s disappointing HSBC flash manufacturing data.

The economic agenda is light today - the main focus will be in the afternoon when the US will release Revised UoM consumer sentiment and inflation expectations.


Copper recently traded at $7,655 per tonne, up $45, pulling the rest of the complex up in its wake. Stocks were down a net 575 tonnes at 223,500 tonnes, while cancelled warrants dropped to 24,750 tonnes, a far cry from the previous month’s all-time high of 108,175 tonnes.

“We would suggest a weekly close below $7,500 for copper would encourage longer-term momentum traders to add to existing short positions and Chinese premiums for the red metal are not yet at levels where a trade response will step in for support,” RBC Capital Markets said.

Aluminium at $2,025 was up $10 on the previous day’s close. Inventories dropped 12,425 tonnes to their lowest since December 20 at 4,943,900 tonnes. No stock increases were reported at any warehouse location.

Cancelled warrants, meanwhile, jumped 53,250 tonnes to 1,807,700 tonnes after metal was booked for removal at Vlissingen – total cancelled warrants at this location are now at 887,700 tonnes.

Nickel was unchanged at $17,075. Inventories were down 354 tonnes at 105,156 tonnes and cancelled warrants were down slightly at 6,510 tonnes.

Lead at $1,955 was also unchanged from yesterday’s close.  Stocks dropped 3,350 tonnes to 349,200 tonnes and cancelled warrants at 70,500 declined 3,600 tonnes.

Zinc rose $10 to $1,896, while stocks stepped back to 939,225 tonnes, down 1,750 tonnes.

Tin was the only base metal in negative territory at $19,800, down $170. Stocks were down 160 tonnes at 13,465 tonnes.

Steel stocks were unchanged, while prices are soft at $410/455.

Activity has picked up in the minor metals over the past two day. Cobalt last traded at $30,000, with three lots changing hands on Select - yesterday, around 10 tonnes of cobalt was said to have traded during the open-outcry sessions. Meanwhile, molybdenum has seen two lots change hands at $29,750.

(Editing by Mark Shaw)