LME MORNING - Base metals under pressure, 'gravity-defying' prices come back to Earth

By: Kathleen Retourne

London 22/02/2013 - Base metals were unsettled in Friday's premarket, moving into a sideways-to-lower pattern after an slight recovery during Asian trading earlier this morning.

“It has been a massive down week and we have seen a small reaction to that today,” a trader said. “This is to be expected pre-weekend after a sell-off. This isn’t a correction. [Metal] prices have been defying gravity of late and we are now seeing some realism come back into markets.

"People will be selling rallies rather than buying dips,” the trader added. “Unless something rises to the rescue for commodities we will see sideways to selling into rallies. There may be some window-dressing and short-covering ahead of the weekend."

Sentiment is still shaky and metals are all down on the start of the week - copper is currently $347 lower than last Friday’s close.

Metals plummeted yesterday when technical selling and talk of a large commodity hedge fund unwinding positions spooked the market, sending the complex to fresh multi-week lows.

Also, concerns that the US Federal Reserve could prematurely wind down its bond-buying programme were sparked by the publication of the minutes of the last FOMC meeting.

“The move down came after the liquidation by funds and concerns over unwinding of positions. The noises out of the Fed on QE unsettled markets and saw risk-off and liquidation,” the trader said.

Meanwhile in the eurozone, German final GDP came in as expected at -0.6 percent while the IFO business climate at 107.4beat expectations of 104.9. The euro was slightly stronger against the dollar at 1.3208.


TRACTION LOST

Copper at $7,864 per tonne was up just $4 on the previous day’s close but down from its session high of $7,938. Lower prices attracted some bargain hunting from China, with volumes on Select at 11,000 lots by 10:30 local time.

Inventories were up for the seventh consecutive day, rising a net 4,100 tonnes to 424,350 tonnes - the highest since October 3, 2011. Increases were widely spread, with 1,975 tonnes going into Johor, 1,100 tonnes to New Orleans and 1,000 tonnes to Incheon in South Korea.

Aluminium at $2,064 was $12 lower after stocks rose 6,175 tonnes to 5,164,200 tonnes. At Vlissingen, stocks rose 10,950 tonnes to 1,567,575 tonnes, of which 867,125 tonnes are cancelled warrants. Total cancelled warrants fell 5,725 tonnes to 1,948,025 tonnes.

Lead at $2,325 was $1 lower - stocks fell 475 tonnes to 288,025 tonnes but cancelled warrants slipped to 151,000 tonnes. Zinc declined $8 to $2,104, with stocks down 4,500 tonnes at 1,185,150 tonnes after drawdowns in Antwerp and New Orleans.

Nickel was up $120 on the previous day at $16,720 after cancelled warrants rose 726 tonnes to 23,304 tonnes while stocks climbed 102 tonnes to 154,500 tonnes. Tin at $23,250 was up $125 but still down seven percent from the previous week’s $25,000.

“Tin had a big move and had done far too much without pausing for breath, so it is no surprise it has come back to these levels,” the trader said.

Steel was last at $300/330 - stocks were unchanged once more - while in the minor metals cobalt was bid at $25,000 and molybdenum was offered at $26,500.


(Editing by Mark Shaw)

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