LME MORNING - Metals take breather after setting fresh highs on weak dollar

London 06/10/2010 - Base metals held below earlier highs during Wednesday LME morning trading, looking to consolidate the latest batch of sweeping gains.

There were fresh cycle peaks across the complex, which was spurred on by dollar weakness, higher equities and keen risk appetite, with precious metals also strong.

Copper set a fresh two-and-a-quarter-year high and tin a new all-time best while aluminium, lead, zinc and nickel all rose to their highest for around five months.

"Supported by firm equity markets and a weaker US dollar, commodities in general and metals in particular are making strong gains," broker Commerzbank said.

The current across-the-board explosive uptrends extended as the dollar remained weak around eight-month lows of 1.3850 against the euro and global stock markets advanced on hopes of renewed monetary stimulus.

Given current robust sentiment, further advances are expected, although sideways trade may prevail until October traded options expire at late-morning.

Strength in precious metals, with gold at a new best above $1,350 per ounce and silver at a 30-year high, rounded off the picture of renewed risk appetite for commodities.

"Given the robust fundamental backdrop, coupled with positive technical momentum, we expect further gains across the sector," broker Credit Suisse said. “The next event risk will be the release of US non-farm payrolls data due on Friday.”

In wider markets, Tuesday's fresh monetary easing moves by the Bank of Japan have boosted expectations of a new round of central bank action to lift stalling economies.

The BoJ cut interest rates close to zero and said it would pump cash into the financial system through asset purchases, which may herald a reflationary splurge by policymakers in Japan, the US and the UK.

Global markets are now preoccupied with the likelihood that the US Federal Reserve will embark on another round of quantitative easing (QE) - effectively printing money to buy assets - next month, an expectation that has pushed the dollar down and given a kneejerk lift to metals prices.

For the metals, the session is likely to see spurts of business - some whippy price moves are anticipated as systems-based activity will also emerge.

"Friday will be interesting with the return of the Chinese and the US non-farm payrolls data," a trader said. “Until then, we look set to continue to move in tandem with currencies and technical flows are likely to dominate.”

But the market is rising ahead of fundamentals and has been driven to some extent by short-term oriented financial investors, Commerzbank said

"High correction potential has now built up as a result and this is all the greater the higher prices rise," it said.


 In the metals, tin set a new all-time high, trading at $26,790 per tonne and then settling at $26,450, up $550 from Tuesday, underpinned by a combination of tight supply/demand fundamentals and low inventories.

Today there was a modest five-tonne increase in stocks to 12,550 tonnes, although the stockpile remains close to 17-month lows.

"Tin is tightening considerably," Commerzbank added. “Besides enormous production problems in Indonesia and also in China lately, we are also seeing stronger stock reductions. Inventories on the LME alone have more than halved to 12,550 tonnes this year.”

Copper jumped to a fresh high since mid-2008 at $8,326, up $151 from the previous close, before holding at $8,260. The July 2008 all-time high of $8,940 is now in its sights.

There was a small 25-tonne rise in stocks to 374,125 tonnes, while cancelled warrants, the metal booked for removal, dwindled to 16,375 tonnes.

Elsewhere, aluminium touched $2,400.50, the highest since April 21, and then drifted back to $2,385, up $5. Stocks fell as usual - down a net 3,825 tonnes at 4,340,675 tonnes.

Lead pared gains to trade at $2,338, up $27, but off the earlier five-month high of $2,359.75, as there was another hefty increase in stocks - up 1,675 tonnes at 199,450 tonnes.

Zinc, at $2,352.50 earlier, its best since April 29, was still $23 higher at $2,335 - stocks dropped 675 tonnes to 613,425 tonnes.

Nickel traded at $25,000, up $300, having touched $25,200, its best since early May. Stocks fell a net 138 tonnes to 123,132 tonnes. Steel billet was $442/448, up $2, with a 650-tonne stock fall seen.

In the minors, cobalt was $38,100/40,000 per tonne, with a one-tonne drop in stocks taking place, while molybdenum held at $30,500/37,500.

(Editing by Mark Shaw)