Base metals firm in early trade, though equities suffer

London 04/10/2010 - Base metals refused to rest on their laurels on Monday, as sentiment remained bullish after last week’s stunning performance, with tin around the $25,000 per tonne level and copper hovering near $8,100 in early trade.

The complex continued to bask in the sunshine of its woozy ascent over the previous week and quarter, which saw prices soar due to tightening supplies and increased risk appetite among investors.  . Tin advanced 40 percent in Q3, while aluminium – the supposed laggard - rose close to 20 percent.

But on Friday, strong official manufacturing data from China and a weaker US dollar trumped rather disappointing ISM figures out of the US, which caused metals to lose steam in the final hour of trading last week.  Manufacturing expanded at the slowest pace in 10 months in September, at 54.4, below expectation of 54.6, but the data was hardly low enough to damage the current price rally.

“The softer US manufacturing reading in September was already priced-in by the market, bearing little impact on prices,” analysts from ANZ said on Monday.

The US dollar continues to serve as a key boost for industrial metals rally, trading at $1.3725 against the euro early Monday, after hitting an 8-month low of $1.3760 against a basket of currencies on Friday. 

European shares fell on Monday for the sixth straight day, on concerns about the pace of the economic recovery and a terrorist threat in Europe.  On Friday, European shares fell to a one-month low, as investors sought to lock-in profits to avoid any disappointments in the fourth quarter.

Meanwhile, US stocks recorded their best quarter of 2010 – and second-best September on record - last month, with a gain of 8.8 percent on the S&P 500.

On Friday, investors will be watching for September non-farm payrolls for clues as to whether economic distress has waned.

Copper traded at $8,091, just $9 off its $8,100, close on Friday, after reaching a two-year high of $8,178 on Friday morning. Copper prices are expected to continue their upward march next year, according to the latest data from the International Copper Study Group, which indicated that the 2011 global refined copper outlook have tightened from initial predictions of a 240kt surplus to the current prediction of a 400kt deficit, as firmer global demand outstrips supply.

Tin traded at $24,801 on Monday, after breaching $25,000 earlier in the morning, teasing its all-time high of $25,500 not seen since May 2008.  “Given the backdrop of continued growth in end-user demand, we believe that these cuts will result in higher tin imports into China,” analysts at Barclays Capital wrote on Friday.

Aluminium traded at $2,351, down $8 from Friday, while nickel traded at $23,850, in line with the previous session’s close.

Zinc traded at $2,216, down $14, while lead traded below $2,292, after reaching $2,317 earlier on Monday. Steel billet was indicated wider at $440/460.

In the minors, cobalt was indicated at $36,800/$41,000, while molybdenum was indicated at $30,500/37,500. Cobalt traders say they are expecting an ‘interesting’ fourth quarter, after news that LME stocks dipped 15 percent this month, reflecting an upturn in demand, as heavy industry gears up for its traditionally busy end to the year.