LME MORNING - Metals boosted by Chinese PMI bounce but cobalt sets new low

By: Eddie van der Walt

London 01/11/2012 - Base metals were higher in Thursday's LME premarket, with sentiment given a boost by a positive Chinese manufacturing PMI. An increase in liquidity, with US markets open again after the devastating landfall of Hurricane Sandy, also lifted sentiment.

Copper clawed higher but has only made up a fraction of the losses sustained since mid-October.

"The metals seemed to have turned a corner yesterday and today’s Chinese PMI data is giving them further reason to climb," FastMarkets analyst William Adams said. "Considering prices were looking oversold recently, there may well be further room on the upside in the short term while the market consolidates."

Sentiment in risk asset markets is positive, with the Nikkei and Hang Seng both higher and spot gold and Brent crude oil also gaining ground. The euro, though, is still under pressure following Wednesday's weak unemployment figures for the EU.

"In terms of data flow today, the Chinese PMI was the focal point," Alex Thorndike of MKS Capital said.

The October reading of 50.2 was up from 49.8 in the previous month, with a number above 50 indicating expansion. The figure compiled by HSBC - focussing more on smaller and medium-sized businesses - read 49.5, an eight-month high.

"China's industrial activity continues to bottom out," HSBC economist Hongbin Qu said. "This is mainly driven by the increase of new orders, thanks to the filtering through of the earlier easing measures, while exports outlook remains challenging.

"We expect a continuation of policy easing to further boost domestic demand and counterbalance the external weakness, leading to a gradual growth recovery in the coming quarters," he added.

A wealth of data is scheduled for release today, including US PMI and weekly unemployment numbers but the focus is on tomorrow's release of US October non-farm payroll numbers and on the US presidential election next week.

The coming weeks have plenty of scope for event risk, with the US election likely to bring the 'fiscal cliff' into focus, followed by the once-in-a-decade Chinese leadership change in two weeks.


Copper was last at $7,822 per tonne, up $62.50. Tightness remains in the forward spreads, with Nov/Dec in a $2 backwardation.

Stocks fell a net 175 tonnes, with New Orleans shedding 1,225 tonnes to 239,600 tonnes. Cancelled warrants fell 1,475 tonnes to 40,200 tonnes.

Aluminium gained $17 to $1,906 after inventories fell 5,900 tonnes to 5,071,475 tonnes, with 3,125 tonnes leaving Detroit and 3,000 tonnes leaving Vlissingen. But cancelled warrants dipped 8,600 tonnes to 1,719,575 tonnes.

"We continue to see risks in this market for as long as high cost production is subsidized, and excess supply is absorbed into lucrative inventory financing deals and reiterate our concern that prices could test lower in the near term," ANZ said in a note.

Zinc also gained ground, adding $14.75 to $1,884.75. Stocks dropped for the third day in a row, this time falling 225 tonnes to 1,169,875 tonnes. Cancelled warrants increased by 4,600 tonnes to 367,375 tonnes.

Lead was recently at $2,100, up $32, with stocks dipping 1,500 tonnes to 322,525 tonnes - the outflow occurring in Johor. Cancelled warrants dipped by the same amount to 128,025 tonnes.

Lead's Nov/Dec spread is currently in a backwardation of $12, rising to $14.50 for Cash/threes.

Nickel is firmer at $16,330, up $135. Inventories rose 666 tonnes to 130,284 after material left warehouses in Rotterdam. Cancelled warrants increased 564 tonnes to 123,404 tonnes.

Tin was last at $20,200, up $275. Tin stocks edged 25 tonnes higher to 11,885 tonnes but cancelled warrants increased 145 tonnes to 5,290 tonnes.

In the minor metals, cobalt traded at $26,000 per tonne, its lowest since the contract was rolled out in February 2010, reflecting ample producer metal availability. It peaked at $47,300 in April 2010. Molybdenum, meanwhile, was neglected.

Steel billet is quoted at $350/360. Warehouse stocks dipped by more than one percent as Antwerp shed 1,170 tonnes, taking the total to 103,675.

(Editing by Mark Shaw)