LME MORNING - Off lows, but weak demand picture and economic uncertainty weigh on prices

By: Kathleen Retourne

London 19/10/2011 - After a weak start to the day, base metals cut losses during pre-market LME trading on Wednesday. A strong euro helped check declines as the currency traded at $1.3825 against the dollar.

Sentiment had dropped after Moody’s Investors Services’ downgraded Spain’s credit rating and warned that France’s rating was also at risk.

However, a report from the Guardian newspaper said that Germany and France have voiced support for quadrupling the size of Europe’s rescue fund, alongside the recapitalisation of banks. This has buoyed hopes that EU officials will come up with a concrete solution to the euro zone debt crisis, when they meet on October 23.  

 “Considering the weak macro-economic picture especially with regard to the uncertainty over finding a solution to euro sovereign debt, markets are holding up pretty well,” a trader said.

“However, this optimism is misplaced as there is a lot of work to do for finance ministers across Europe to solve this. The demand picture for metals is also very uncertain for now, China growth is slow to steady but several strike situations at miners are lending a supportive hand.”

The sector as a whole is expected to remain mixed and volatile, amid the ongoing economic uncertainty.

US data releases scheduled for Wednesday include the September CPI and September figures on building permits and housing starts.

PRICES INCH HIGHER

Copper at $7,372.25 was down $76.75, despite supply constraints due to production disruptions in Peru and Indonesia. The metal’s net warehouse stocks saw a slight increase of 250 tonnes to 452,175 tonnes, while cancelled warrants dropped 3,975 tonnes to 38,475 tonnes.

“While fundamentals speak in favour of firmer prices, the lack of technical momentum and the uncertain macro environment continue to flag risks for a short-term retracement” said Credit Suisse.

Aluminium stocks were down 2,725 tonnes to 4,571,625 tonnes, while cancelled warrants increased 1,975 tonnes. At $2,208 prices were unchanged on yesterday’s close.

Nickel stocks hit the lowest since February 13, 2009, at 89,478 tonnes, losing 960 tonnes from Tuesday. Cancelled warrants increased 102 tonnes to 7,122 tonnes, which could add support to prices. Business, however, at $19,015 was down $135 on Tuesday’s close. 

Zinc prices dropped $18 to $1,860. Inventories were up at 794,675 tonnes, an increase of 125 tonnes. Cancelled warrants were placed at 5,675 tonnes.  

Lead stocks rose 525 tonnes to 388,350 tonnes and cancelled warrants remained unchanged. Business at $1,918 was down $8.  

Tin stocks declined 695 tonnes to 17,875 tonnes . Prices were down $5 at $21,340.

Steel was $530/543 while in the minors cobalt was neglected and molybdenum quoted at $26,450/28,900.

(Editing by Martin Hayes)

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