LME MORNING - Base metals climb slightly but eurozone concerns cap gains

By: Kathleen Retourne

London 19/04/2012 - Base metals gained across the range on Thursday but remained under pressure while eurozone concerns loom large.

Spain sold 2.541 billion euros of 2014 and 2022 bonds, beating its target of 1.5-2.5 billion euros. The 10-year bond auction bid-to-cover ratio climbed to 2.4 from 2.2 last time, showing higher investor demand. The yield climbed to 5.78 percent from 5.4 percent previously.

“The key factor is the yield increase", Robin Bhar of Société Générale said. “As we saw with Greece, yields rose and rose until it became impossible to sell bonds and effectively it was closed out of the bond market and had to go for a rescue bailout.”

“The auction went better than expected but does it really resolve the crisis? In two months time, will we see Spain priced out of the market and go for an IMF/EU bailout? That is still on the cards and that is worrying the market,” he added.

In other news, a G-20 two-day meeting starts today - its focus will be on expanding International Monetary Fund (IMF) reserves. Member countries including Poland and Switzerland have committed to raise $316 billion to help contain the debt crisis, director Christine Lagarde said in a statement.

Elsewhere, reports in China quoted a central bank official as saying that the country is preparing to increase liquidity via open market operations and cutting banks' required reserve ratios to help strengthen economy.

“China is slowing, the US appears to be losing momentum - these worries are all resurfacing and this means that demand for metals will be slow. We have got Cesco [Week in Chile] going on now and there is a lot of talk about large copper stocks in China, so China doesn’t need to come into market,” Bhar said.

“It’s very similar to the trend we had a year ago when we had a huge build-up in SHFE stocks and bonded warehouse stocks. All of that needs to be run down,” he added. "China doesn’t need to be buying in copper market until after summer now."

Datawise, markets are also awaiting Italy's industrial orders for February, where a contraction is expected, and eurozone consumer confidence. In the US, the Philadelphia Fed Index and leading indicators are due for release as well as weekly jobless claims and existing home sales.

Japan's exports rose for the first time in six months in March on the same month of 2011, mainly on the strength of US sales, overnight data showed.


ALL METALS UP

Copper at $8.069.75 per tonne was up $19.75 on the Wednesday's close. LME warehouse inventories climbed for the second consecutive day, rising 1,550 tonnes to 262,700 tonnes due to an increase in metal booked into European warehouses.

Antwerp saw a large delivery of 1,575 tonnes, taking total stocks in this location to 2,275 tonnes, while Vlissingen increased stocks to 1,925 tonnes, a 25-tonne increase. St Louis inventories also rose 1,125 tonnes to 78,300 tonnes.

But stocks fell 1,600 tonnes in New Orleans, 500 tonnes in Chicago and 250 tonnes in Rotterdam. Cancelled warrants - metal booked for removal - were down 5,075 tonnes at 57,325 tonnes.

“Copper is now trading a new range of $7,850-8,260. The tightness within the spread, coupled with on balance a stock drawdown, is keeping the market in check on the downside,” a trader said. "I still favour a move towards $7,700 as eurozone jitters, although abated for now, will not disappear altogether."

Tightness in copper spreads is still evident. TOM/Next was last at $3/6 backwardation, while cash to May is at $46/50 May/June is at $13/15 back and June/July is at $8/12 back.

Aluminium at $2,064.25 was $5.25 higher. Inventories declined 8,875 tonnes to 5,062,125 tonnes, with no warehouses showing any increase.

Vlissingen was down 3,000 tonnes again, taking total stocks there to 1,026,125 tonnes, of which 871,325 tonnes - nearly 85 percent - are cancelled warrants. Global cancelled warrants were also down, dropping 7,350 tonnes to 1,681,500 tonnes.

Nickel increased $170 to $17,800. Stocks climbed 138 tonnes to 99,762 tonnes, while cancelled warrants dropped 198 tonnes to 99,762 tonnes.

Zinc at $2,001 was up $9. Inventories at 9112,825 tonnes were down 625 tonnes due to a 550-tonne decrease in Chicago. Cancelled warrants fell 625 tonnes to 16,350 tonnes.

Lead rose $16 to $2,061 after stocks dropped to a near-one-month low of 370,200 tonnes, a 1,250-tonne drop, while cancelled warrants at 26,976 tonnes were up 4,750 tonnes due predominantly to metal booked for removal in Port Klang, Malaysia, where there was a 6,000-tonne jump to 6,900 tonnes.

Tin, which has been under pressure this week, improved today, rising $201 to $21,216. Inventories saw a slight drawdown of just 10 tonnes to 13,480 tonnes, while cancelled warrants also declined 10 tonnes to 900 tonnes.

Steel was quoted at $505/511, with stocks and cancelled warrants unchanged again at 30,160 tonnes and 3,380 tonnes respectively. In the minor metals, cobalt was indicated at $30,100/31,000 and molybdenum at $30,500/32,000.


(Additional reporting by Clara Denina, editing by Mark Shaw)

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