LME MORNING - Base metals rise, bolstered by fresh stimulus hopes

By: Kathleen Retourne

London 03/09/2012 - Base metals were in positive territory on Monday morning on the LME, building on Friday’s gains and shrugging off poor Chinese data.

The complex initially reacted negatively to Federal Reserve chief Ben Bernanke’s speech at Jackson Hole on Friday after he failed to implement additional stimulus measures.

But he did keep the door firmly open for a third round of quantitative easing and this, coupled with some short-covering and book-squaring, led to a rally towards the closing sessions.

Data from China over the weekend capped gains earlier this morning. The Chinese official manufacturing PMI, published over the weekend, at 49.2 was below the 50 level that divides growth from contraction for the first time since November, although this has bolstered hopes of further stimulus from the People's Bank of China.

“Overall, we would not be surprised if base metals rise further in anticipation of more QE but we feel there is a high risk that it will end up being a ‘buy the rumour, sell the fact’ situation in that any positive reaction to stimulus may end up being relatively short-lived,” FastMarkets analyst William Adams said.

European Central Bank (ECB) president Mario Draghi will speak later today, although it is believed that Thursday’s press conference will garner more attention - he is expected to reveal the bank’s plans to stem debt contagion, with the focus expected to be on government bonds. The euro, which shot to an eight-week high against the dollar on Friday, is fairly steady this morning at 1.2566.

Eurozone data released earlier disappointed - Spanish and Italian manufacturing PMIs came in below expectations at 44.0 and 43.6 respectively - while the eurozone final manufacturing PMI at 45.1 was slightly lower than the expected 45.3.

US markets will be closed for the Labor Day holiday today.


Aluminium at $1,906.50 per tonne was up $4.50 despite a large increase in stocks. Tightness remains in spreads, with September/October now at a backwardation of $3.00/4.00.

LME inventories jumped 14,900 tonnes this morning, due to an 18,000-tonne increase in Vlissingen. This location now holds 1,269,225 tonnes, of which 809,650 tonnes or 64 percent are cancelled warrants.

Vlissingen could potentially overtake Detroit, which holds 1,314,150 tonnes, as the largest holder of warranted aluminium. Rotterdam's steady uptake of metal also continues, with another 3,000 tonnes lifting the total to 543,925 tonnes. Meanwhile, total cancelled warrants declined 9,100 tonnes to 1,682,050 tonnes.

Copper earlier peaked to $7,700 but has since stepped back to $7,662.50, still up $52.50 on Friday’s close.

“Money managers have become considerably more optimistic recently, thereby bolstering prices,” Commerzbank said. “In the case of copper, for instance, the week to August 28 not only saw massive covering of short positions, but for the first time since mid-May there was a net long position again of 3,300 contracts.

"This illustrates the shift in sentiment among market players that has emerged in recent weeks,” it added.

Inventories fell for the sixth consecutive day, down a further 4,625 tonnes at 225,275 tonnes - the lowest since May 28.The decrease was due to drawdowns in Busan and Gwangyang, where the total fell 3,150 tonnes and 1,050 tonnes respectively.

Lead gained $20.50 to $1,985.50, with the 'TOM/Next' (tomorrow/next day) spread was at a backwardation of $0.05/0.30. Stocks were 2,350 tonnes lower, the 15th consecutive day of losses, to stand at 307,875 tonnes, of which 111,675 tonnes are cancelled warrants.

Sister metal zinc at $1,866.25 was $25.25 higher after inventories and cancelled warrants each fell just 25 tonnes to 951,075 tonnes and 122,050 tonnes respectively.  

Nickel rose $299 to $16,249 even after stocks climbed 876 tonnes to 119,784 tonnes and cancelled warrants fell 66 tonnes to 14,232 tonnes. Tin at $19,675 was up $325; inventories were unchanged at 11,635 tonnes, of which 5,990 tonnes are cancelled warrants.

Steel was offered at $395 after stocks dropped for the 17th consecutive day to 50,115 tonnes. In the minor metals, cobalt was indicated at $29,000/30,000 and molybdenum was offered at $25,000.

(Editing by Mark Shaw)