LME MORNING - Copper leads most metals higher as rally continues, tin set new peak again

By: Martin Hayes

London 27/01/2011 - Base metals generally advanced during Thursday morning LME trading, maintaining the snap rally of the previous session, reflecting a softer dollar, momentum-based buying and wider financial trends.

"Supported by firm equity markets in Asia, metals have continued yesterday’s trend of rising prices this morning," broker Commerzbank said.

Overnight, the result of the US FOMC meeting and subsequent policy statement was much as expected. The Fed voted unanimously to hold interest rates steady and said they would remain exceptionally low for an extended period.

The benchmark interest rate was kept at zero percent to 0.25 percent, while the Fed also maintained plans to buy $600 billion of Treasuries through June. The dollar struggled this morning, easing to around 1.3744 against the euro, a two-month low.

In the metals, copper rose some 1.7 percent, extending a bounce from Tuesday's one-month lows. Similar moves were seen in other metals as they built on a recovery from lows last seen in December. Tin continued to set all-time highs, underpinned by worries over Asian supplies.

But for most of the complex the rises are tentative while the mood is less positive than earlier in the month - prices look vulnerable to renewed bouts of liquidation. Wider economic developments, such as ratings agency S&P downgrading its Japanese debt rating this morning, will keep the mood jittery.

Short-term fundamentals are also slack. The week-long Chinese New Year holiday starts next week, so activity there will stall, while warehouse inventories rose once more in some metals.

"It does look as though dips are still attracting buying but the fact prices dropped sharply and the trends have turned lower in the larger metals does show that there is selling around," William Adams of FastMarkets said.


Copper rose to $9,485 per tonne at one stage and then settled at $9,475, up $150 from yesterday. But warehouse stocks rose for the fifth day in a row, up a net 2,575 tonnes at 397,275 tonnes, the highest since September 3, 2010.

Also, China is seen destocking metal when needed from stores in bonded warehouses in the near term rather than importing, Barclays Capital said.

Recent import levels have reflected financing activity but not all of the metal has been absorbed by actual consumption, with the domestic market trading at a discount, the broker said in a special report. Accordingly, inventories held in bonded warehouses have increased.

Meanwhile, technical signals remain negative at present.

"We look for a break over $9,600 to relieve bearish pressure and prompt a test of the $9,781 all-time high," BarCap said.

Tin touched a new record peak of $28,900, the fourth day in a row that the market has set a fresh benchmark high - the metal largely remains immune to speculative swings. It settled at $28,890, up $265.

Supply-side factors are underpinning sentiment. Indonesian exports have fallen this month - heavy rains and floods caused by the La Nina weather phenomenon have disrupted tin mining operations in the country.

But stocks in LME-bonded warehouses rose, also for a fifth successive day, up 15 tonnes to 17,720 tonnes, the highest again since June 30, 2010.

Lead business at $2,325 was up $49, although inventories climbed for the fourth day in succession, up 1,625 tonnes at 276,925 tonnes, the highest now since April 27, 1995.

But prices had become oversold, while caution surrounds the nearby tightness that runs through to the February 'third Wednesday'.

This morning, TOM/next (tomorrow/next day) traded out to $9.75 backwardation before settling recently at $8.50. On Wednesday the backwardation for this rate reached its maximum under LME lending guidance rules at $12.67.

In other metals, aluminium moved back above $2,400 to trade at $2,413, up $26, recovering from one-month lows set on Tuesday. Inventories fell 5,475 tonnes to 4,520,725 tonnes.

Nickel rose as high as $26,789, the highest since April 27, 2010, having partly avoided the sell-off that hit the other metals this week. Stocks, however, rose to end a seven-day run of declines. They were up 324 tonnes at 135,186 tonnes.

Zinc, however, was under renewed technical pressure, easing to $2,263, a $15 loss. In steel, billet was quoted at a little-changed $560/585, with stocks falling a net 390 tonnes.

Cobalt was stable at $38,000/44,100. Stocks were unchanged at 311 tonnes, but cancelled warrants rose 20 percent to 116 tonnes. Molybdenum was bid at $38,000.

(Editing by Mark Shaw)