LME MORNING - Metals resume advances, IMF cash increase provides adrenalin boost

By: Martin Hayes

London 18/01/2012 - Base metals broke higher during Wednesday premarket LME trading when a brief pause and retracement was halted by a leap in equities and the euro on reports that the IMF was looking to increase its lending reserves by $1 trillion.

Prices, which had been trending lower, rebounded swiftly to home in on the previous session's peaks, with some setting new highs for the current cycle. Equity markets in Europe spiked, while the euro rose to 1.2820 against the dollar.

Tin, lead and zinc nipped up to fresh multi-week peaks, while copper and aluminium neared their highest since late October.

But given the pace and the extent of the advances this week, prices may see some profit-taking, although the improvement in short-term sentiment suggests that floors may be developing.

"The positive tone across the complex is a mix of optimism US growth will improve during 2012, and that the successful recent controlled slowing of the Chinese economy will allow for a looser monetary policy going forward for this major base metal consumer," broker RBC said.

Although the global economic situation remains uncertain - financial markets will be susceptible to political and economic shocks - some adverse developments may now be priced in.

"The market's ability to rally in the face of Fridays S&P European downgrades and the downgrade of the European rescue fund suggest risk tolerance is rising in conjunction with traders seeing value across equity and commodity markets," RBC added.

For the metals, the rest of this week is expected to see business flows slow ahead of next week's Chinese New Year holidays, with data events sparking bouts of movement and activity. A spell of technical consolidation may now develop - some of the charts are becoming over-extended, analysts said.

"We see these rallies as counter-trend moves. That said, the rallies have been strong and therefore momentum may take them higher still," William Adams of FastMarkets said.

On the data side today, US releases include the December PPI, November TIC long-term purchases, and December figures for the capacity utilisation rate and industrial production.


Copper, which had been drifting below $8,200, traded as high as $8,260.50 and then held at $8,245, up $45 from Tuesday. Stock drawdowns continued for the 11th day in a row. Inventories fell 925 tonnes to 352,500 tonnes, a fresh 13-month low.

Aluminium cut losses, and was trading at $2,217, a $10 loss. Stocks, at all-time highs on Tuesday, fell 1,375 tonnes to 5,005,150 tonnes. Cancelled warrants also dropped from all-time highs - they stood at 763,300 tonnes.

Zinc rose to $2,025, a one-month peak, and then settled at $2,021, a $20 advance, although inventories climbed again to a four-month high - stocks were up 4,750 tonnes to 839,450 tonnes.

Tin sprinted to $21,900, a fresh two-month high, before dropping back to $21,700, a $25 loss. Stocks fell 50 tonnes to 10,885 tonnes, a fresh low since April 2009.

Lead hit $2,136.75, its highest for a month and up from a previous $2,108. Stocks dropped 1,775 tonnes to 349,300 tonnes.

Nickel business at $19,536 was up $11 - there was a 126-tonne stock decline to 91,908 tonnes.

Steel was indicated at $533/542, with stocks dropping 715 tonnes to 67,990 tonnes. The minor metals were neglected.

(Editing by Mark Shaw)