LME MORNING - Base metals retreat as correction hits buffers, copper below $7,200/t

By: Martin Hayes

London 17/04/2013 - Base metals fell across the board during Wednesday LME premarket trading, with prices increasingly vulnerable to renewed downside pressure now that the brief snap technical correction to the Monday sell-off has stalled, traders said.

"It does look as though the markets remain nervous, which is not surprising - after such a dramatic pullback, there are likely to be regular pullbacks to test the whereabouts of underlying support," William Adams of FastMarkets said.

Copper led the way, breaking below the $7,200 pivot level. This dragged the rest of the metals backwards although their losses were not extreme - prices held some way above the sell-off lows, trying to sustain a corrective bounce. Still, sentiment remains highly strung and the market is seen staying volatile in the short term.

"The direction prices head off in, once the dust settles, should therefore say a lot about the underlying strength or weakness of the global economy," Adams said.

The latest economic newsflow added negative weight - the International Monetary Fund revised its 2013 global growth estimate lower to 3.3 percent year-on-year from 3.5 percent previously. The IMF also lowered its outlook on China's economic growth to 8.0 percent from 8.1 percent.

For the complex, wider macroeconomic fundamentals have proved to be a drag recently. Mostly soft data from the US has been seen - Tuesday's housing figures were mixed. Also, China's forecast-missing GDP reading for the first quarter and continuing European debt concerns have further clouded the outlook for the quarter.

Declines have been compounded by the massive sell-off in gold, which is still struggling around $1,385 per ounce, some $55 above its two-year lows.

"The recent gold sell-off is a definite complexity we didn’t account for. A bit more fence-sitting is probably in order so we can see what happens with gold, and commodities generally," broker RBC said.

On the economic newsflow side, later today weekly US crude oil inventories data will be released, while the latest US Federal Reserve Beige Book will be issued.


Copper accelerated lower after a conclusive breach of $7,200, trading at $7,166 per tonne, down $119 from the previous close - sell-stops were seen. In stocks data, there was a net 3,400-tonne decline to 608,525 tonnes from what had been the highest level since September 2003.

Prices are, however, insulated to some extent above Monday's 18-month low of $7,085 by supply-side developments - force majeure has been declared by Kennecott Utah copper on cathode shipments from its Bingham Canyon mine. Owner Rio Tinto has cut this year’s production estimate by 100,000 tonnes from its original estimates due to last week's pit wall slide.

Aluminium was fluctuating either side of $1,900, trading recently at $1,903, an $11 decline. The market has been underpinned in a bounce from 30-month lows of $1,818 at the start of the week by technical covering and forward consumer buying.

Inventories fell 10,525 tonnes to 5,188,475 tonnes. There were no inflows, while regular outflows were seen from Detroit and Vlissingen.

In others, lead matched the trend, falling $17 to $2,048. The seventh successive daily fall in inventories - down 200 tonnes - saw the total stockpile drop to 259,475 tonnes, a fresh six-month low. Sister metal zinc eased to $1,879, down $17 - stocks were down 6,125 tonnes at 1,121,050 tonnes.

Nickel eased $154 to $15,551 but a mini-run of inventory declines from last week's all-time highs continued, with stocks down 48 tonnes at 168,456 tonnes. Tin at $20,711 was $409 lower, while inventories were down 45 tonnes at 14,625 tonnes.

Steel billet was neglected - stocks were down 130 tonnes at 77,675 tonnes, the lowest since January 11. The minor metals were also neglected and inventory levels were static.

(Editing by Mark Shaw)