LME MORNING - Metals jump alongside inflation, demand forecasts

By: Barbara Stcherbatcheff

London 31/01/2011 - Base metals started the week on a strong footing on a weak dollar and brighter fundamentals but the uptrend could be challenged should risk aversion escalate due to growing turmoil in Egypt.

Copper soared almost two percent to $9,700 per tonne, trading just below the all-time high reached two weeks ago, while tin revisited the $30,000 mark for the second time ever on Monday as traders looked to cover short positions ahead of the Chinese New Year holiday later this week.

The dollar softened to 1.3656 against the euro but was still firmer than last week’s two-month lows of 1.3730, as investors poured into safe-haven assets following the eruption of anti-government riots in Egypt on Friday.

The unrest in Egypt has triggered a wave of risk aversion across all asset classes since Friday. But while around 150 people have reportedly been killed in clashes with police, political change rarely has a severe impact on mining companies operating in these areas, according to broker Fairfax.

The financial markets are closed in Asia for holidays from February 2-8, while expectations that Chinese demand will resume after the New Year holiday has boosted prices this morning as buyers try and secure stocks for when markets reopen.

The Shanghai Futures Exchange will temporarily raise trading margins and intraday limits for all contracts around New Year to lower trading risk, it said.

Chinese inflation was 4.6 percent in December after reaching a two-year high of 5.1 percent in the previous month, with analysts widely expecting this level of price acceleration to continue.

Today’s economic calendar is busy, with US personal spending and income due at 13:30 GMT, while Chicago PMI is due at 14:45.

A slew of manufacturing and jobs data could tip the scales for base metals later this week, with several analysts predicting another rise for industrial commodities on positive data surprises for US manufacturing and non-manufacturing indices, as well as US non-farm payrolls.


SPECULATORS BECOME BULLISH

Speculative financial investors reduced their net long positions by a sharp 22 percent to 28,200 contracts in the week ending January 25 - the lowest level since the end of November - according to Commerzbank.

The price of copper has accordingly responded with a drop of almost five percent in this reporting period.

The rise in copper prices since then implies that “financial investors are more optimistic again and have been betting more on rising prices”, Commerzbank said.

Copper was $76 higher at $9,655 after a large 30-percent drop in cancelled warrants - these fell 8,125 tonnes to 18,875 tonnes. The red metal is set for its seventh consecutive monthly gain.

Aluminium gained $21 to $2,478, nickel rose $165 to $26,865 and zinc traded $50 higher at $2,351.

Lead was largely unchanged, trading $3 higher at $2,457. Stocks rose for the sixth consecutive day to 279,925 tonnes, the highest since 27 April, 1995.  The percentage of cancelled warrants against stocks continues to dwindle - it is now at just one percent - indicating that stocks may continue to rise in the short term.

The underlying market for lead remains tight, however, with the backwardation still around $80 for cash/three months.

Tin hit $30,000 earlier in the session and was last at $29,800, up $200. Cancelled warrants increased 71 percent or 650 tonnes to 1,570 tonnes, the largest increase in the month. 

The metal hit fresh records on every trading day last week on persistent worries over availability in leading exporter Indonesia.

Steel billet was indicated at $550/565. In the minors, cobalt was indicated at $38,000/41,000 while molybdenum was not indicated.


(Editing by Mark Shaw)

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