LME MORNING - Base metals retreat as economic outlook sours

By: Kathleen Retourne

London 10/04/2012 - Base metals slipped in Tuesday LME pre-market trading as a ream of poor global economic data weighed on prices.

The LME re-opened after the long Easter holiday weekend to a bleaker market outlook, as data from US and China when the market was closed was disappointing, while eurozone fears are mounting.

The European debt crisis returned to centre stage as fears that debt contagion will head into Spain grow, despite the country’s government reiterating its pledge to reduce the deficit. The euro at around $1.3090 remains low, and is expected to show further weakness, while equities dropped to a two-month low.

Eurozone data today saw Sentix investor confidence come in worse-than-expected at -14.7 against a forecast of -7.7 percent. French industrial production, however, rose 0.3 percent against an expected 0.2 percent.

China's copper imports for March dropped 4.6 percent to 462,182 tonnes, compared to 484,569 tonnes in the previous month. Meanwhile, the country's annual inflation rate jumped more than the forecast 3.3 percent at 3.6 percent, but the overall trade balance showed a surprise surplus of $5.35 billion - a trade deficit of $2.2 billion was expected.

“There were already indications in the past weeks and months that this would happen, so it should not have come as a surprise: sharply increased stocks in the warehouses of the SHFE made it clear that China had imported more copper than it needed in the previous months. What is more, there was no scope for attractive arbitrage between the exchanges in London and Shanghai in March either,” said Commerzbank.

In the US, meanwhile, in Friday's data non-farm payrolls rose by 120,000 in March - but a gain of 203,000 jobs was expected. The unemployment rate fell to 8.2 percent in the same period, down from 8.3 percent previously.

"On balance, given the poor US employment report and the Chinese import data we would expect the metals to come under pressure as the data bodes ill for demand, but perhaps thoughts of QE3 will provide support again," analyst William Adams at FastMarkets said.

ALL METALS SOFTER

Copper at $8,237.25 per tonne was down $123.75 on the pre-weekend close and trading around a 20-day low. The metal was particularly hit after the Chinese data showed that the country imported 4.6 percent less of the red metal in March.

Warehouse stocks saw an increase of 3,625 tonnes to 268,400 – the highest since March 14. Cancelled warrants dropped back 1,875 tonnes to 75,850 tonnes.  Volumes on Select have ticked up, with some 12,710 lots changing hands so far.

Aluminium fell $11.25 to $2,098.25. Stocks at 5,066,625 tonnes saw a 7,550-tonne increase due to 10,500 tonnes of the metal arriving in Vlissingen, while Port Klang, Malaysia saw a 1,000-tonne increase. Cancelled warrants at 1,636,025 tonnes dropped 6,075 tonnes as warehouses react to the increase in minimum load-out rates.

Zinc eased under $2,000 to $1,995, down $8. Warehouse inventories saw a 4,675-tonne increase to 899,825 tonnes, taking stocks back up to the highest since May 22, 1995. The increase was due to 5,250 tonnes warranted in New Orleans. Cancelled warrants, meanwhile, at 21,125 tonnes were down 350 tonnes.

Lead prices at $2,035 slipped $24.50. Stocks fell for the fourth consecutive day, losing 1,200 tonnes to 373,375 tonnes and cancelled warrants at 14,925 tonnes were down 1,875 tonnes. Nickel managed to hang above $18,000, but remains under pressure at $18,051, down $354. Inventories declined 120 tonnes to 100,026 tonnes, while cancelled warrants at 7,494 tonnes were up 198 tonnes.

Tin at $22,655 was down $520, stocks dropped 25 tonnes to 13,045 tonnes and cancelled warrants were unchanged at 855 tonnes.  

Steel stocks continue to decline, falling for the 20th consecutive day to 34,580 tonnes a 1,560-tonne loss, while prices were quoted at $503/520. In minor metals, cobalt was indicated at $30,000/32,400, while molybdenum was neglected.

(Additional reporting by Clara Denina. Editing by Martin Hayes)

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