LME MORNING - Base metals firmer on growing monetary easing expectations

By: Kathleen Retourne

London 03/07/2012 - Base metals made an upbeat start on Tuesday, with market participants increasingly hopeful that the recent spate of poor global data will lead to a fresh round of monetary easing.

Poor data from China on Sunday and a worse-than-expected ISM manufacturing index - it dropped to 49.7, below dividing line between growth and contraction at 50 - have lifted speculation of further stimulus.

Over in Europe, the eurozone manufacturing PMI for June was consistent with its previous level at 45.1 but the EU unemployment rate climbed to 11.1 percent.

Market participants believe that further interest cuts are likely - the Bank of England is widely expected to announce further stimulus on Thursday and the European Central Bank is seen announcing a rate cut of 25 basis points on the same day.

“The EU summit [last week] has reduced tail risk in Europe and shown readiness of EMU leaders to compromise. This is a positive factor that lends support to risky assets, as technical analysis also confirms with its own set of indicators,” Credit Suisse said.

In today’s data, EI PPI was below the expected -0.2 percent at - 0.5 percent, further fuelling cries for the ECB to cut rates. The euro is just below 1.26 at 1.2595 against the dollar.

Later today the US will release its factory orders. But the main focus of the week is the release of US non-farm payrolls on Friday.


ALL METALS UP

Copper earlier peaked at a six-week high of $7,815 before settling back but it remains comfortably in positive territory at $7,742.75 per tonne, up $117.75 on the previous day’s close.

Overnight buying from Asia has lifted volumes on Select, which are above 8,600 lots. Tightness in the spreads has eased back slightly - cash/three months is now at $9.75 backwardation after reaching $13.00 back last Thursday.

LME inventories at 255,175 tonnes were down a net 1,125 tonnes due to removals from New Orleans, Rotterdam and Singapore. Cancelled warrants - metal booked for removal - climbed 2,725 tonnes, with Baltimore cancelled warrants up 4,000 tonnes. Total cancelled warrants for the red metal now stands at 29,325 tonnes.

Falls in production in Chile - the largest producing nation in the world - appear to halted for now, Commerzbank said, citing figures from national statistics institute INE.

“Production rose 3.6 percent year on year in May to hit 458,600 tonnes. The rise is the result of new mines being opened and existing mines extended," it said. "During the first five months of the year, output totalled 2.19 million tonnes, up 1.9 percent on the year-ago period."

Aluminium gained $36 to $1,945, its highest since June 18. Inventories at 4,812,625 tonnes were down for the third consecutive day, dropping 10,025 tonnes, with no locations posting any increases and considerable drawdowns in Detroit at 3,425 tonnes and Vlissingen at 3,000 tonnes.

In cancelled warrants, a 10,000-tonne jump took the totals to 1,792,300 tonnes, with an 11,575-tonne increase in Detroit. Stocks there now stand at 1,396,325 tonnes of which 741,350 tonnes - or 53 percent - are booked for removal.  

In other metals, zinc rose $33 to $1,905. Stocks declined 1,625 tonnes to 993,050 tonnes and, while cancelled warrants were down 1,625 tonnes, they remain substantial at 158,275 tonnes. Lead was up $28.75 at $1,907.75 after stocks fell 525 tonnes to 349,200 tonnes.

Nickel has broken through $17,000 - at $17,010 recently, it was up $260. Inventories climbed 510 tonnes to 8,388 tonnes. Tin at $19,100 was up $200 even after stocks rose 420 tonnes to 12,590 tonnes.

Steel last traded at $410, while in the minor metals cobalt was indicated at $28,000/30,300 tonnes while molybdenum was neglected.


(Editing by Mark Shaw)

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