LME MORNING - Base metals revert lower, latest rally falters on soft sentiment

By: Martin Hayes

London 26/06/2013 - Base metals fell again during Wednesday LME premarket trading,  with the snap corrective rally on Tuesday proving unsustainable in the face of negative short-term fundamental sentiment and bearish chart signals, traders said.

"Yesterday’s recovery was clearly of short duration only, and this morning already sees metal prices under pressure again," broker Commerzbank said.

Decreasing risk appetite for commodities, with gold around three-year lows, palladium its weakest for seven months and the dollar strong, suggested that current downswing lows in the base metals complex will be tested again.

"It is going to be a bumpy ride and there will be the odd 'up day'. But most of the time these markets look like a 'sell' as the summer carries on," a trader said.

Concerns about how the shortage of monetary liquidity will affect the real economy in China continue to influence the mood, Credit Suisse said. China is cracking down on excessive credit - its central bank has engineered a tightening of cash in money markets as it tries to rein in excessive credit growth.

"These worries also appear to be overshadowing positive economic figures, such as those reported from the US yesterday," the broker added.

US data yesterday was, in theory, supportive, with durable goods orders rising more than expected in May to 3.6 percent, beating the forecast three-percent increase.

On the data side today, the US will publish its final first-quarter GDP number, forecast to show growth of 1.1 percent. Strong figures out of the US could further the case for the Federal Reserve to pull back on long-standing monetary stimulus and follow through on its plans to taper its third quantitative easing programme.

In data so far out of Europe, the June GFK German Consumer Climate number beat the forecast 6.6 by 0.2 points.


COPPER BACK UNDER $6,800/T

Copper was under pressure after failing once more to hold above $6,800 - this level represents an important chart point. Business at $6,740 per tonne was down $65, with the three-year low of $6,602 hit on Tuesday again in sight.

Warehouse stocks fell a net 3,750 tonnes to 671,000 tonnes, while cancelled warrants - metal booked for removal and in queues - jumped to another all-time high of 360,550 tonnes.

Cancellations, which are rising in other metals, reflect a fresh wave of financing deals in the past week, while there are also widespread rumours that HKEx is about to announce new changes on LME warehousing rules, intending to reduce the delivery queues in places such as Vlissingen, Detroit, Antwerp and Johor.

Aluminium was trading at $1,783, a $1 loss from yesterday. Inventories rose 2,725 tonnes to a fresh all-time peak of 5,448,000 tonnes, with 10,550 tonnes warranted in Vlissingen. Cancelled warrants climbed to 2,238,400 tonnes, the highest since late December and not far off record levels.

Nickel dipped to $13,817 from a previous $13,930 - stocks were up 1,872 tonnes at 187,956 tonnes, a fresh record high. Zinc business at $1,842 was down $6.50, although inventories resumed their downtrend, falling 5,450 tonnes to a five-week low of 1,062,950 tonnes.

Lead fell $18 to $2,037, while stocks crept up 400 tonnes to 194,600 tonnes. Tin at $19,625 was $250 lower - inventories held at a three-week low of 14,140 tonnes.

Steel billet was indicated at a wide $150/210, while stocks were unchanged at 74,880 tonnes. In the minors cobalt was quoted at $30.110/31,500, while molybdenum was neglected.


 (Additional reporting by Eddie van der Walt, editing by Mark Shaw)

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