LME MORNING - Base metals consolidate as market digests QE concerns

By: Kathleen Retourne

London 08/07/2013 -Base metals were in consolidation mode on Monday on the LME as the market digested the previous week's movements.

Sentiment took a turn for the worse on Friday after June US non-farm payrolls data came out better-than-expected at 195,000 jobs added.

The Fed could begin to taper its quantitative easing programme from the September FOMC meeting, FastMarket analyst Jono Remington-Hobbs predicted, although the initial reduction is likely to be small to limit any volatility that would result. The central bank is currently committed to purchasing $85 billion in new debt per month.

“It would appear that even though the ‘writing has been on the wall’ about QE for some time now the market is still getting its head around the likely impact,” said FastMarket analyst William Adams.

“Indeed it seems as though the impact is going to affect the economies outside of the US as much as, if not more than, the US itself, as much of the liquidity that QE created has flowed into emerging markets as financial institutions searched far and wide to get better yield.”

“We regard the current pessimism exhibited by market participants as exaggerated,” said Commerzbank. “In our opinion, metal prices should stabilise, with Wednesday’s trade figures from China doubtless playing their part.”

The euro was last trading around six-week lows at $1.2843. The single currency was already under pressure last week after European Central Bank (ECB) President Mario Draghi said the bank's policy will keep interest rates at current or lower levels for an extended period of time.

Earlier, German trade balance data undershot expectations of a 17.4 billion euro surplus, coming in at 14.1 billion euros, while the Sentix investor confidence index was also lower at -12.6.

Elsewhere, the eurogroup are meeting today in Brussels. Meanwhile there are reports that Greece has secured its troika deal to receive the latest tranche of bailout funds.

“The Greeks have been in talks for nearly a week now to show that they can deliver on their budgetary pledges, which if actually implemented, likely means more layoffs,” said INTL FCStone analyst Edward Meir.


Copper at $6,788 per tonne was $8 higher than Friday’s close, while inventories were down a net 3,400 tonnes to 656,600 tonnes. Cancelled warrants at 354,600 tonnes were down 5,350 tonnes. Tightness in spreads has eased back with only August-3 months and September-3 months in backwardationS of $3.00 and $4.50 respectively. 

Aluminium was $18 higher at $1,786, although stocks rose 1,075 tonnes to 5,419,875 tonnes and cancelled warrants fell 3,725 tonnes to 2,250,550 tonnes.

Lead at $2,047 increased $17, with stocks down 1,150 tonnes and cancellations at 110,525 tonnes. Sister metal zinc was up $21.25 at $1,861.25 as inventories dropped 5,025 tonnes to 1,030,325 tonnes and cancelled warrants at 687,725 tonnes were down 4,952 tonnes.

Nickel, which dropped to its weakest since May 2009 on Friday, was last at $13,404, up $104. Stocks were down 198 tonnes to 193,578 tonnes and cancelled warrants rose 3,024 tonnes to 28,440 tonnes, due predominantly to increases in Johor.

“With nickel prices trading within the 60th percentile of the global cost curves some participants suggest the market could undergo short-covering rallies in the near-term,” said ANZ.

“Although global nickel production, ex-China, should start to cut back supplies, we think prices could remain under pressure unless Chinese Nickel Pig Iron (NPI) producers start reducing output.”

Tin, which had slipped to its softest since August during Friday’s kerb sessions at $18,809, was last at $19,200, up $350.

Meanwhile, Indonesia’s Ministry of Trade has increased the lead content in its tin exports.

“Almost before they entered into force, the Indonesia Ministry of Trade has already softened its tighter regulations on tin exports,” said Commerzbank. “The lead content of tin exports is now allowed to be higher than originally announced after all. This could allow more supply from Indonesia to reach the world market than initially feared.”

Steel was indicated at $155/175 with no changes in stocks. Cobalt was quoted at $30,500/32,000 and molybdenum was neglected.

(Editing by Martin Hayes)