LME MORNING - Base metals prices mostly flounder, aluminium lowest since late last year

By: Martin Hayes

London 25/02/2013 - Base metals struggled to make headway during Monday LME pre-market trading when negative wider fundamental sentiment offset tentative attempts to technically consolidate and rebound from last week's sell-off, traders said.

"The markets try to bounce but most people are not willing to take them on now as the funds are likely to sell into any decent rally," a trader said.

Aluminium hit its lowest for around three months and zinc and lead racked up fresh one-month lows although copper managed to hold above last Friday's two-month lows.

"Besides the restraint being exercised by market players on account of the Italian elections, the provisional PMI for the manufacturing sector in China calculated by HSBC is doubtless also weighing on sentiment," broker Commerzbank said. "The index fell unexpectedly sharply in February, though it still remains in expansive territory."

China's February HSBC flash PMI was at a four-month low of 50.4 against January's 52.3, which had been the best for four months. But it was above the 50 level that separates expansion from contraction.

Despite steadier equities and relative stability in the euro, the complex is locked into a downswing now - the complex remains beset by uncertainty, traders said.

"Some markets have seen some very tentative stabilization, but sentiment remains very shaky," broker Credit Suisse said.

The euro moved up to around 1.3260 against the dollar - it had hit 1.3142 on Friday, its weakest since January 10.

For the metals, however, sentiment remains challenging, and the complex may well struggle further this week given that the decisive change in short-term sentiment has snuffed out the January rallies.

For financial markets, a downbeat macroeconomic backdrop has emerged - renewed worries over global growth have been fanned by consistently sub-par economic releases from the US and Europe in particular.

Today, although there are no front-line data releases, financial markets will gear up for US Federal Reserve chairman Ben Bernanke’s testimony to US lawmakers from Tuesday to Wednesday. Also overhanging markets will be the automatic spending cuts totalling $85 billion that will come into effect on Friday unless US Congress decides to delay them temporarily.

"Given the Chinese PMI data, we would not be surprised by further weakness in the base metals. The rebound in equities on Friday suggests there was some bargain hunting around but, given the potential for US spending cuts being triggered later this week, we still feel all markets are vulnerable on the downside," William Adams of FastMarkets said.


Copper was managing to hold above Friday's two-month lows of $7,796 - it rose to $7,867 per tonne, up $62 and around intraday highs. But inventories increased for the eighth day in a row, up a net 6,375 tonnes to 430,725 tonnes, the highest since October 28, 2011.

Separately, the US Securities and Exchange Commission (SEC) has accepted BlackRock's proposal to launch iShares Copper Trust Fund, a copper-backed exchange-traded fund (ETF) that would be listed on the New York Stock Exchange.

The BlackRock ETF could store upwards of 120,000 tonnes of copper but there are further legal hurdles looming and any movements in stocks moving is some way off, traders said.

In others, aluminium fell to its lowest since November 29, touching $2,029.25, and was last at $2,032, down $16 on Friday's close. The psychological downside level is $2,000. Stocks fell, however, down 7,100 tonnes at 5,157,100 tonnes.

Zinc business at $2,081 was $7 lower, holding above the earlier one-month low of $2,072.50, with inventories dropping 4,500 tonnes to 1,180,650 tonnes, the lowest for three months. Lead hit $2,295.25, a one-month low as well, and then moved back to an unchanged $2,304, up $2. Inventories fell a modest 100 tonnes to 287,925 tonnes.

Nickel at $16,857 was down from Friday's close of $16,940 but above last week's three-month low of $16,600. Stocks were up 1,068 tonnes at 155,568 tonnes, the highest since April 2010.

Tin traded at $23,125, a light $20 gain, but inventories rose 70 tonnes to a nine-month peak of 13,650 tonnes.

Steel billet was indicated at a flat $300/330, cobalt was steady at $25,000/26,450 and molybdenum was neglected.

(Additional reporting by Kathleen Retourne, editing by Mark Shaw)