LME MORNING - Metals push higher as dollar subsides, lead and zinc charge to multi-month peaks

London 21/10/2010 - Base metals regained upside momentum during Thursday morning LME trading, largely due to a fresh downwards lurch in the dollar, which was soft and back above 1.4030 against the euro

A string of data showing China's economic growth cooled in the third quarter also failed to deflect the complex too much.

Both lead and zinc stood out, hurdling the $2,500 per tonne level at one stage to set 10-month and six-month highs respectively, while copper also rose decisively from sub-$8,300 levels as initial losses and wariness dissolved.

An encouraging inventory report also provided some stimulus and, overall, market sentiment remains upbeat and the bias is still to the upside.

The metals’ sell-off earlier this week after China's snap interest rate increase has temporarily checked what had been a broad-based uptrend, although there has been no serious downside correction, suggesting that bullish sentiment still ticks away.

"These are still very high prices but there are a few enquiries coming through from the trade now - they weren't interested a week ago - so I get the impression that the dips are going to be bought," a physical trader said.

Wider financial markets - the metals are sensitive to dollar moves - are gearing up for the G20 finance ministers meeting this weekend and a G20 summit next month. So the next two days may see some knee-jerk reactions to currency swings.

"At turning points in a market trading often does get more volatile and choppy trading is certainly what we have seen so far this week," William Adams of FastMarkets said. “Later we get PMI data out across Europe, US initial jobless claims, consumer confidence, leading indicators and the Philly Fed manufacturing index, so there could be considerable activity in the markets.”

Overnight, the Federal Reserve released its Beige Book Survey, showing that the US economy grew at a modest pace in September and early in October

"The report that was released yesterday was more upbeat than previously expected," John Meyer of broker Fairfax noted. “The publication increases the prospect of further quantitative easing as the economy only seems to be expanding at a very modest pace.”

Meanwhile, the Chinese data was broadly in line with forecasts, suggesting that a surprise interest rate rise from this week may be enough for now, but markets remain wary of further policy tightening by the central bank.

China’s GDP growth slowed further to 9.6 percent in the third quarter of 2010, while the increase for the first nine months was 10.6 percent, the latest figures released by the country’s National Bureau of Statistics showed.

Inflation rose in September to 3.6 percent, reaching a 23-month high but in line with forecasts. The CPI and PPI rose 3.6 percent and 4.3 percent respectively.

"While last night’s economic data from China was in line with the expectations, some market players had obviously expected better data after the surprising interest rate hike two days ago, which was seen as a sign of strength," broker Commerzbank noted.

In other economic statistics issued by China, the country's metals output was mixed last month - copper production rose two percent, zinc 17 percent and nickel 13 percent but aluminium and steel fell 8.4 percent and four percent respectively.


The smaller metals set the pace, with lead and zinc setting new highs within the current upswing, while others were positioned below their overhead targets.

Lead rose to $2,508 per tonne, its highest since January 15 and up $58, settling at $2,495, with warehouse stocks dropping a net 150 tonnes to 198,075 tonnes.

Zinc jumped $64 to a six-month high of $2,504 and then likewise held at $2,495. Inventories fell for the 15th successive day - down 650 tonnes at 605,775 tonnes, a fresh low since late May.

Copper bounced back above $8,300 per tonne to trade at $8,390, a $50 advance on the Wednesday close, and then held at $8,365. Inventories fell a net 750 tonnes to 370,000 tonnes, just 50 tonnes above Tuesday's one-year lows.

Cancelled warrants - the metal booked for removal - rise chunkily for the second day in a row, up 12 percent to 28,475 tonnes. A test of the $8,500 level is on hold for now - prices peaked earlier this week at a 27-month high of $8,492.

Aluminium bounced back into the plus column, trading at $2,383, up $21, as inventory declines resumed following a mini two-day run of increases.

Stocks fell a net 4,700 tonnes to 4,325,125 tonnes. There had been two days of stock increases this week, with metal warranted, as usual, against the monthly 'third Wednesday' prompt date.

Elsewhere, nickel held gains despite another inventory increase - the sole primary metal to see a rise in stocks. Business at $24,010 was up $515 but the third successive stock increase - up a net 264 tonnes - resulted in the stockpile climbing to 124,836 tonnes, the highest since late June.

Tin edged back to $27,000, a $250 advance and just $300 below its recent all-time high. Stocks dropped a net 45 tonnes to 12,645 tonnes.

Steel billet held at $480/492 against a previous $487/492. Stocks fell for the 20th day in a row - down 975 tonnes at 56,680 tonnes, the lowest since late July again.

In the minor metals, cobalt was quoted at $38,000/38,900 per tonne, up $250. There was a seven-tonne stock rise to 207 tonnes, the highest since early September, as cathodes have been warranted against a run of 'third Wednesday' maturing positions and possible tightness. Molybdenum was indicated at $31,000/37,450.

(Additional reporting by Li Hongmei in Singapore. Editing by Mark Shaw)