LME MORNING - Metals advance on euro strength, follow-through covering

By: Martin Hayes

London 12/01/2011 - Base metals rose solidly during LME trading on Wednesday morning, bolstered by further euro strength and follow-through covering from the previous day's positive technical closes.

"The weaker dollar, general optimism about the US recovery and a belief that globally governments won’t allow the EU debt situation to melt down are underpinning market sentiment," William Adams of FastMarkets said.

The general mood has been helped by a bright start to the US corporate quarterly results season, kicked off by Alcoa, with the Fed's 'beige book' report on economic health due later today.

The euro, meanwhile, maintained its strength from yesterday, breaking and holding above the 1.30 level against the dollar to trade recently at 1.3028, awaiting debt sales by debt-stricken eurozone countries.

Europe's finance ministers may consider raising the effective lending capacity of the currency bloc's rescue fund as part of efforts to calm jittery markets, reports suggested. This follows Japan's promise to support a forthcoming eurozone bond sale.

On the data side, US December import prices are due for release later. German GDP rose 3.6 percent in 2010, according to figures that have already been published, the strongest rise since German reunification. And eurozone industrial production rose 1.2 percent in November, above an expected 0.5 percent and up from 0.7 percent in the previous month.

For the metals, this week's annual commodity indexes reweightings, which will be completed on January 14, have still not had a significant impact. The focus, instead, is likely to be on warehouse inventory moves as a pointer to offtake in the short-term run-up to the Chinese New Year.

But the latest significant warehouse inventory builds had little or no impact - lead, tin and aluminium stocks all continue to accumulate.

"Seasonality suggests that the inventories could resume their downtrend in February," broker Credit Suisse said.


Copper built on Monday's constructive chart close above $9,500 per tonne, trading as high as $9,645 per tonne, slightly more than $100 below the recent all-time high, and then settling at $9,609, up $99 from the Tuesday close.

There was a 1,475-tonne net decline in warehouse inventories from what were three-and-a-half-month highs to 378,175 tonnes.

The mood has changed now, with prices having broken above the ceiling of a short-term $9,300-9,500.

"Currently, underlying sentiment is good enough for [copper] testing the recent highs again," LME RDM Triland Metals said.

The market hit a fresh all-time high of $9,754 per tonne last week and retreated in an overdue correction to test support at $9,300.

Aluminium was holding above the $2,500 level, trading up $12 from the previous close at $2,509. There was another big stock increase - up a net 14,650 tonnes to 4,408,350 tonnes, the highest for four months.

Inventories have now risen more than 135,000 tonnes in just three days, with the latest jump due to a further large warranting in Detroit of 18,325 tonnes.

Lead business at $2,621 was up $26, with another stock rise shrugged off. Inventories rose 300 tonnes to 211,975 tonnes, a fresh 15-year high. But the market has been buttressed to some extent by technical tightness, with cash/threes at a $15/23 backwardation.

Elsewhere, zinc rose to $2,437, up $31. Stocks fell from yesterday's six-year highs, dropping a modest 125 tonnes to 710,025 tonnes. Nickel business at $25,225 was up $230 - a short-term downtrend is in place in inventories, dropping a net 768 tonnes to 135,096 tonnes today

Tin advanced $300 to $26,850 but the latest 225-tonne stock increase lifted the total to 17,115 tonnes, the highest since July 2010. Steel billet traded at $595, up $5. Although inventories were unchanged at 56,485 tonnes, some 5,720 tonnes were cancelled, of which 5,005 tonnes were in Rotterdam and the balance in Tekirdag.

In the minors, cobalt was steady at $38,000/44,000. Stocks rose five tonnes to 272 tonnes. Molybdenum was stable at $37,000/40,000. Headline stocks stayed static at 288 tonnes but six tonnes were cancelled today.

(Additional reporting by Royston Wild. Editing by Mark Shaw)