LME MORNING - Base metals edge higher but caution remains

By: Kathleen Retourne

London 14/03/2013 - Base metals have put in a lacklustre trading session on the LME on Thursday morning, as the market remains stuck in current ranges, although the entire complex has now moved higher and into positive territory.  

Metals, with the exception of tin and lead, were pulled down on Wednesday, due to a lack of interest and a stronger dollar, traders said.

This morning has seen a slight improvement - moves higher are limited, however, amid concerns of Chinese monetary tightening.

Meanwhile, the euro was still under pressure, last at $1.2933 as positive US data releases and poor EU releases weighed on sentiment.  Eurozone December employment change data disappointed, as numbers came in at -0.3 percent against an expected -0.1 percent. 

Meanwhile, the People's Bank of China Governor Zhou Xiaochuan said on Wednesday that the country should be on "high alert" over inflation after China's February CPI came in at 3.2 percent last week, above the forecast of 3.0 percent and a jump from 2.0 percent in January.

Zhou comment's fuelled expectations that PBOC would use monetary policy to rein in consumer prices despite weak manufacturing indicators.

The prospect of further monetary tightening in the world's top metals consuming country added to the downside risk for base metal prices. Although investors were already disappointed that Chinese demand for metals has failed to pick up since the Lunar New Year holiday, current price levels may be supported by a false sense of optimism that demand conditions will soon improve.

Several participants are hopeful that prices will see a recovery.

“Over the last few weeks, markets mainly focused on commodity-specific fundamentals which still paint a rather cautious picture. However, the focus is likely to shift back to the bigger economic picture. Given gradual improvements in economic activity, we think commodity prices have some recovery potential,” said Credit Suisse.

“The short-term outlook for the base metals looks a bit brighter as counter-trend moves seem to be underway across the markets and on the charts the metals, both base and precious, look well placed to rebound further,” said FastMarkets analyst William Adams. “(We) would not get too comfortable with the base metals' rebounds just yet however, as they may turn out to be just pauses in the down-trends that started in mid-February.”

Meanwhile, aluminium and zinc prices were supported by reports that China's State Reserves Bureau had issued tenders to buy 300,000 tonnes of aluminium and 50,000 tonnes of zinc from local smelters.

Data releases scheduled for Thursday include US current account balance, the February US PPI, and weekly US unemployment claims.

COPPER SIDEWAYS, ALUMINIUM SPREADS WATCHED

Copper at $7,801 per tonne was $16 higher. Stocks were up a net 1,750 tonnes to 522,250 tonnes, while cancelled warrants fell 100 tonnes to 33,250 tonnes.

 Aluminium was $18 higher at $1,983, as stocks dropped 8,025 tonnes to 5172950 tonnes. Cancelled warrants at 1,855,950 tonnes were also down, falling 7,925 tonnes.

Spreads continue to attract attention. June/July, Sep/Oct and Dec13/Jan14 continue to be pinch-points in the curve and now the quarter-ends in 2014 (Mar/Apr, Jun/July, Sep/Oct and Dec/Jan) are starting to see borrowing interest.

“Aluminium spreads continue to be a thorn in the side of many dealers especially as there have been some long dated spread enquiries in the market,” said RBC Capital Markets.

“Clearly a much larger play than previously thought is being put in place. Given the action seen thus far, we would expect to see physical premiums and warehouse queues being a hot topic for some time to come as large, influential players seek to gain access to the material everyone wants,” RBC added.

Lead at $2,256 was up $5 - it saw declines in both stocks and cancelled warrants for the third consecutive day, losing 2,400 tonnes to 279,000 tonnes and 150,200 tonnes respectively. Zinc at $1,988 was up $6 with a 1,700 tonne drawdown in inventories to 1,206,725 tonnes

Nickel was back over $17,000, last at $17,060, a $120 rise, while stocks were up 600 tonnes due to arrivals in Antwerp, Johor and Rotterdam, taking total stocks to 161,646 tonnes. Cancelled warrants at 32,226 tonnes were up 2,730 tonnes – a fresh all-time high.

Tin at $23,975 was up $25, while stocks rose 120 tonnes to 13,760 tonnes – a 10-month high. The Indonesia Ministry of Trade reported last week that the country’s tin exports in February, at 8,354 tonnes had fallen by 8.7 percent.

Poor weather conditions were to blame, which severely hampered tin mining and transport. Even though the worst of the rainy season is now over in Indonesia, the world’s biggest exporter of tin, production is likely to continue to be affected by the weather this month.

“As a result, exports are likely to be subdued this month too. Given the recent rise in stock levels, however, fears of any shortage on the global tin market appear premature. We nonetheless anticipate higher prices during the course of the year if the global economy - and by extension demand - were to recover and supply were to fall short of the predicted level,” said Commerzbank.

Steel was bid but not offered at $330, while in minor metals, cobalt was indicated at $24,975/25,750 and molybdenum offered at $24,200.

(Editing by Martin Hayes)

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