LME MORNING - Metals edge higher, but lack momentum ahead of Fed meeting

London 28/10/2010 - After Wednesday’s steep sell-off, base metals recovered slightly in LME morning trading on Thursday, clawing back some of the losses on the back of a weaker dollar but lacking direction overall.

“Volatility in the metals has picked up in recent weeks and with the market now watching the dollar very closely we would say there is room for further downside corrections,” William Adams, analyst at FastMarkets, said on Thursday.

The dollar was resilient, trading firmly around the $1.3839 level after climbing as high as $1.3770 versus the euro in Wednesday's session.

Most economists expect the Federal Reserve to unveil a program of Treasury bond purchases worth between $80 billion and $100 billion spread out over several months at their November policy meeting next week, in an attempt to stimulate the struggling US economy.

This amount falls short of the market’s previous expectations for an aggressive half-billion dollar stimulus package, and traders have reacted to the fresh outlook forcefully, exiting short-dollar positions, while selling commodities and metals.

Overall, the markets won’t have much news to trade on, as Thursday’s economic data agenda is relatively empty, with the standard weekly jobless claims figures due at 13:30 BST, but this is one of the last jobs-related indicators before the Fed policy-setting meeting will be held early next week. The number of U.S. workers filing new claims for benefits is expected to have ticked up slightly, to 458,000 from 452,000, according to economists at briefing.com


Even a dead cat will bounce if it falls from a great height - the metals markets are no different.

Base metals dropped on Wednesday by an average of 2.9 percent in a high-volume session, which saw three months turnover at approximately 43,000 contracts.

The complex struggled Thursday to sustain a tentative bounce after yesterday's sharp sell-off as and Thursday’s mixed inventory report did little to boost sentiment, with stock increases weighing on both lead and zinc. 

Copper traded at $8,345, up $45, after teasing 27-month highs in the previous session. Inventories did resume their downtrend, falling a net 575 tonnes to 368,025 tonnes, while cancelled warrants - the metal booked for removal - rose 6.5 percent to 29,250 tonnes.

Workers at Anglo America and Xstrata’s Collahuasi copper mine in Chile, the world’s largest copper producer, rejected a company wage offer in a vote yesterday. “The strike is likely to support prices in the short term,” John Meyer, analyst at Fairfax, said on Thursday.

Lead traded at $2,520, down $23 from the previous close, and more than $100 below yesterday's 10-month high of $2,619. Inventories rose a net 1,075 tonnes to 199,775 tonnes, the highest since May 2000.

Zinc traded at $2,508, down $2 and near the lows after another hefty inventory increase. Stocks were up 5,325 tonnes to 616,850 tonnes and have now climbed some 10,000 tonnes in two days due to warrantings in New Orleans.

Zinc and lead have given up some of the gains made since last week but both metals continue to find support above $2,500 on the back of smelter shutdowns in China.

Meanwhile, aluminium traded at $2,341, up $18, while the 4,100-tonne fall in stocks reduced the total to 4,310,975 tonnes, the lowest since June 15th 2009.

Nickel edged $225 higher to $23,030, although stocks rose one percent or 1,290 tonnes to 128,262 tonnes, the highest since June 18.  

Tin was up $50 at $26,100, while steel billet was $481/508 after closing above $500 in the previous session.  Steel’s 24-day run of stock declines came to an end when billet inventories held at 53,885 tonnes, still the lowest since July 20.

In the minor metals, cobalt was indicated at $37,000/38,000, while molybdenum was indicated at a wide $31,000/37,450. Cobalt stocks rose 10 tonnes to 209 tonnes, the highest since September 9.