London 12/10/2010 - Base metals largely fell back on Tuesday morning at the LME, maintaining the trend that developed progressively in the previous session, with steadiness in the dollar also a short-term driver.
The metals complex is also looking to correct and adjust after the almost-constant advances of recent days - copper and aluminium were trading at fresh highs for the current upturn as recently as early on Monday.
Although many prices have become overextended on the upside, the current retreat is somewhat shallow and does not represent the more severe technical retracement that many of the indicators suggest is needed.
“The markets appear to be taking a breather, awaiting the next round of data for directional clues,” LME trader Sucden Financial said.
In other markets, the dollar was staging a cautious rally away from last week’s eight-and-a-half-month lows above 1.40 against the euro, settling around 1.3810. Equities were also subdued, with European shares down around one percent by mid-morning.
Although the dollar has been pressured by the growing likelihood of renewed monetary easing from the Federal Reserve next month, it has paused for now on the downside. Meanwhile, China said its currency reforms did not necessarily mean a yuan appreciation, which has implications for its metals market activities.
"The markets are speculating on slowing growth in China, although due to uncertainties over currencies and potential for ETFs the outlook for prices appears relatively unclear, although we are more confident of longer-term upside than downside,” broker Fairfax said.
With LME Dinner Week running its course, the metals complex may look to sustain and build on the current strong mood, which has been augmented by the widely-anticipated unveiling of physically backed (exchange-traded commodities) ETCs.
Yesterday, ETF Securities said it will launch a range of physically backed base metals ETCs.
“The sentiment at the LME events is positive but the metals industry is not the driver,” LME ring dealing member (RDM) Triland Metals said. “Constant talk about ETC/ETFs is keeping the market wondering how these might gain shape.”
The industrial metal range of ETCs will include physical aluminium, copper, lead, nickel, tin and zinc, as well as a basket consisting of all six metals.
“What remains unclear is whether the ETFs are really good for the market - or investors, for that matter,” a trader said.
The data flow has been slow so far this week - Monday was a partial holiday in the US. But with the US Fed's November meeting the focal point, minutes from its meeting on September 21, when it said it stood ready to provide more support for the economy and expressed concern about low inflation, are due at 1800 GMT.
There will be figures from China later this week as well.
“Metals are likely to continue to consolidate ahead of tomorrow’s release of Chinese preliminary trade data for September,” broker Credit Suisse said. “The data is likely to show robust import demand for metals in light of the recent pick-up in the new orders component of the latest manufacturing PMI.”
COPPER BACKS AWAY FROM UPSIDE BUT INVENTORY FALLS RESUME
Copper, which hit 26-month highs just shy of $8,400 per tonne at one stage on Friday, retreated further today - it eased to $8,227, down $63 from the previous close.
But inventory declines resumed, with stocks falling a net 725 tonnes to 371,750 tonnes, the lowest again since late October 2009.
Aluminium was also unwinding from Monday’s five-month highs above $2,400, although not to the same extent and business at $2,404 was up $4. Stocks continue on a relentless downwards path, dropping for the 19th successive day - they fell 3,825 tonnes to 4,323,750 tonnes, their lowest since mid-June 2009.
Zinc was relatively stable, trading at $2,326, up $11, with inventory erosion maintained. Stocks fell a net 500 tonnes to 198,425 tonnes, the eighth successive daily fall, with the total of 610,350 tonnes the lowest since late May. Sister metal lead slipped to $2,295, a $20 loss, with a modest 25-tonne stock fall seen.
Tin traded at $25,800, down $395, but stocks are being drawn down consistently. Today they fell for the fourth day in a row - down 105 tonnes to 12,150 tonnes, the lowest since late May 2009.
Nickel was $475 lower at $23,900, with inventories up 240 tonnes at 123,714 tonnes, the highest since July 1.
Steel billet stocks fell for the 13th day in a row –-down 2,015 tonnes at 65,750 tonnes, the lowest since mid-August. The market was quoted at $452/470. Cobalt was indicated at $36,800/38,900 per tonne while molybdenum was at $30,500/39,500.
(Editing by Mark Shaw)