LME MORNING - Metals settle back from new rally highs, look to build on advances

By: Martin Hayes

London 25/01/2012 - Base metals tracked back from early new multi-month highs during Wednesday LME premarket trading, looking to consolidate the latest leg-up in a strong January rally.

The trend matched patterns elsewhere, with European equities, initially steadier, turning lower, while the euro came off its highs of 1.3052 against the dollar to settle below 1.30. Nevertheless, they remain underpinned by strong technicals and upbeat short-term sentiment.

"The market is looking surprisingly steady, and there is money looking for a home," a trader said. "Perhaps all the bad news is now 'priced in' to the market."

Copper and nickel hit four-month peaks at one stage, lead and zinc their best since mid-September and aluminium and tin were at levels last seen late in October.

"They are all doing incredibly well - all finished on a positive note last night and roared again this morning," another trader said.

Further technical impetus was seen, while the return of some Asian centres following the Lunar New Year holiday added momentum. But volumes were still low-key - Chinese markets remain closed until next week.

"The CTAs were short going in the end of last year, so they have been caught badly and covered, and I guess they may well be going long now," the first trader added.

In the short term, prices have further upside potential given recent positive signals from charts, although some metals run the risk of becoming overextended.

There are also pitfalls from the wider macroeconomic background - the IMF on Tuesday cut its forecasts for growth and warned of a deeper downturn if Europe does not take stronger action to stem the eurozone debt crisis.

"We remain bearish for the medium term. We would run with these rebounds while they last but remain on high alert for signs of them faltering," William Adams of FastMarkets said.

In the US the focus switches from President Barack Obama's State of the Union address on Tuesday, in which he called for restoring the economy's manufacturing base, towards the US Federal Reserve's policy board meeting, which concludes later on Wednesday. No change is anticipated in interest rate policy.

Before that, US data releases include December pending home sales and the November OFHEO HPI.


COPPER AGAIN FALTERS ABOVE $8,400 BUT INVENTORY SHRINKAGE CONTINUES

In the metals, copper rose as high as $8,455.25 per tonne and then fell back under the recent stubborn resistance level of $8,400, trading at $8,330, down $30 from Tuesday's close.

Warehouse inventories fell for the 16th day in a row - down a net 2,500 tonnes at 339,750 tonnes, a fresh 28-month low.

"Copper has come off the highs but everyone is still reasonable friendly towards it, but I think the bigger the rise, the harder the fall," the second trader said.

Aluminium was trading at $2,230, down $9, having settled back from $2,262. Inventories fell from what had been all-time highs by 3,400 tonnes to 5,003,800 tonnes.

In other metals, lead was $8 lower at $2,242, having been as high as $2,280. Inventories fell by a modest 75 tonnes. Zinc business at $2,125 was unchanged. Prices had peaked at $2,178 but stocks rose 1,225 tonnes to 849,175 tonnes, the highest since last September.

Nickel rose to $20,886, then settled at $20,656, down $44 - inventories jumped 1,212 tonnes to 94,104 tonnes, the highest since last October

Tin business at $22,155 was down $35, having been as high as $22,585. Inventories were unchanged at 9,685 tonnes, a 28-month low, but cancelled warrants climbed 34 percent to 2,230 tonnes due to cancellations in Johor.

Steel was quoted at $515/520 and cobalt at $32,000/33,500.


(Additional reporting by Kathleen Retourne, editing by Mark Shaw)

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