LME MORNING - Base metals rally runs out of steam on China concerns

By: Kathleen Retourne

London 16/07/2012 - Base metals slipped into negative territory on Monday morning, down from Friday’s closing levels, with copper down 0.5 percent.

Poor data from China last week - most notably weak GDP data - had boosted prices on Friday on hopes of further stimulus measures but, while Chinese Premier Wen Jiabao said that government interventions in the economy would continue, he warned that weak growth may persist.

Attention has now turned to the US, where Federal Reserve chairman Ben Bernanke is due to speak before Congress on Tuesday. The market will look for any hint at further monetary easing measures; should none be forthcoming, the euro is likely to weaken, which will weigh on base metals. The single currency is now at a soft 1.2227 against the dollar.

“The technical trend for the EUR/USD remains firmly negative and there are now increasing concerns that the EUR/USD could approach the 1.20 area (June 2010 lows),” Credit Suisse said. “We now see the EUR/USD trading in a new range of between 1.20 and 1.25 over one month.”

The International Monetary Fund (IMF) will release a report on the state of global economy later today, the outcome of which could dictate sentiment and currency movements.

Eurozone CPI data for June came in as expected - CPI year-on-year was at 2.4 percent and core CPI at 1.6 percent. But the trade balance data for May at 6.3 billion euros beat a forecast of 4.8 billion euros.

From the US, retail sales, empire state manufacturing index and business inventories data is due.


Copper at $7,656 per tonne was down $44 on Friday’s close. Stocks rose a net 50 tonnes to 251,625 tonnes while cancelled warrants were down 600 tonnes at 51,972 tonnes. Volumes are light - just 3,800 lots have changed hands on Select so far.

Speculative financial investors raised their net short positions in copper in the week to July 10 to 48,000 contracts, a rise of 3,100 contracts, Commerzbank pointed out.

“In effect, this reverses part of the short covering from the previous week; at the same time, the increase was majorly responsible for the good four-percent decrease in the price of copper in the period under review,” it said.

Aluminium spent much of the early part of the morning above $1,900 but it has since dropped - it was last at $1,897, was down $13.

Inventories dropped 3,625 tonnes to 4,799,850 tonnes. Countering a 2,925-tonne increase in Detroit, there were removals form several locations, most notably Vlissingen and Singapore. Cancelled warrants at 1,778,325 tonnes dropped 9,450 tonnes.

“We continue to see strong US Midwest [aluminium] premiums, currently around a record 11.25 cent/lb, and Indian smelter Nalco said prices should recover to above $2,000 within three months,” ANZ Research said. “That is possible, but with Chinese production continuing at or near record levels, gains are likely to remain in check.”

Nickel at $16,098 was down $102 while stocks at 107,130 tonnes were up 1,386 tonnes and cancelled warrants fell 150 tonnes to 9,006 tonnes.

Zinc declined $13 to $1,861. Stocks jumped 11,375 tonnes after six consecutive days of falls due to a large delivery of 13,475 tonnes into New Orleans. Total stocks in this location now stand at 694,425 tonnes, of which 107,600 are cancelled warrants. Total cancelled warrants for zinc are at 190,750 tonnes, down 4,250 tonnes on Friday.

Lead at $1,869.75 declined $1.25. Inventories dropped 1,600 tonnes to 342,975 tonnes, although cancelled warrants largely negated this increase by falling 1,100 tonnes to 45,500 tonnes.

Tin fell $180 to $18,600. Stocks dropped just five tonne to 12,095 tonnes while cancelled warrants rose 705 tonnes.

Steel was steady at $400/420. Stocks on Friday saw a large jump of 14,560 tonnes in Antwerp but were unchanged this morning at 42,705 tonnes. In the minor metals, cobalt was indicated at $27,200/28,250 while molybdenum was neglected.

(Editing by Mark Shaw)