LME MORNING - Base metals supported by supply concerns, improved market confidence

By: Kathleen Retourne

London 17/10/2011 - Base metals came off their intraday highs during Monday morning LME trading but remained up on Friday’s close thanks to a strong euro and an increase in confidence that action will be taken to resolve the European debt crisis.

Generally, sentiment was more positive, with investors hoping for concrete steps to tackle the eurozone debt crisis to emerge after a European Union summit this weekend.

“Copper is being driven by stronger euro and increasing appetite. It is getting to the top of its current range; personally, I feel it should be sold scale up from $7,700 per tonne,” a trader said.

The metal recently traded at $7,618.25 pre tonne, an increase of $73.25.  

FastMarkets analyst William Adams expects prices to work higher in the short term in anticipation of a concrete EU deal but said he would not be surprised if this turns out to be a case of "buy the rumour, sell the fact".

"There is a lot of room for disappointment if policy-makers' plans do not come up to expectations," Adams warned.

Still, riskier commodities such as metals and equities are buoyant. In Europe, the FTSE 100, Dax and Cac 40 were all in positive territory and the euro is currently at 1.3845 against the dollar after hitting an intraday and one-month high of 1.3913 earlier, buoyed by hopes for a resolution to the eurozone debt crisis.

Closely watched data due for release today includes US empire state manufacturing, industrial production and capacity utilisation.


Tightness in aluminium remains. December three-month showed a backwardation of $0.00/2.50, while December/January is showing backwardation of $1.00/2.50. February/March is still showing a backwardation of $2.00/3.00 and March/April showed only a slight contango of $3.00/1.50.

“It could be whoever has the stock is planning ahead on keeping it,” a trader said. “The more you tie up, the less [is] available to take out. Also, if you borrow enough of it, you increase the likelihood of getting decent material.”

Three-month LME Select price was recently at $2,240, an increase of $20 on Friday’s close. Inventories were up a net 8,825 tonnes to 4,557,400 tonnes and cancelled warrants increased 1,600 tonnes to 228,300 tonnes.

Copper has been further supported by bullish supply-side news. Freeport-McMoRan's giant Grasberg mine in Indonesia - where workers are striking over wages and welfare issues - was forced to halt production on Monday after its main pipeline leading to the port was cut and security concerns escalated.

Warehouse net inventories were also up, rising 1,450 tonnes to 451,650 tonnes. Cancelled warrants were down 2,825 tonnes to 47,050 tonnes,

Zinc stocks continue to fall, with a loss of 1,700 tonnes taking the total to 796,725 tonnes, the lowest since April 19. Cancelled warrants were up at 68,475 tonnes, which could provide further support to prices. The metal was steady at $1,927.50, down just $0.75 on Friday's close.

Nickel inventories fell 552 tonnes to 90,924 tonnes, the lowest since February 16, 2009, while cancelled warrants at 6,204 tonnes were down 780 tonnes. Business at $18,950 was up $80.

Lead stocks remain at an all-time high, with no net change in the total from Friday’s 388,500 tonnes. Cancelled warrants dropped 500 tonnes to 6,550 tonnes. The metal recently changed hands at $2,040, up $14.

Tin gained $201 to $22,001 after stocks dropped 25 tonnes to 19,060 tonnes while cancelled warrants increased 285 tonnes to 3,720 tonnes.

Steel at $525/545 was unchanged while in the minors cobalt was indicated at $29,762/43,500 and molybdenum was offered but not bid.

(Additional reporting Perrine Faye, editing by Mark Shaw)