LME MORNING - Base metals little changed despite Chinese stimulus speculation

By: Kathleen Retourne

London 29/05/2012 - Base metals were steady on the LME on Tuesday morning, improving on yesterday’s closes but capped by an uncertain economic outlook.

Speculation that China will inject an additional $300 billion of stimulus money into the domestic economy to promote growth has not yet had a notable impact on prices or volumes.

“[It's] very quiet today,” a trader said. “Chinese news is positive but has not really influenced the market. Volumes are small and there seems to be a distinct lack of interest.”

The potential Chinese stimulus would see a loosening monetary policy such as a cut in interest rates and further cuts in the bank reserve ratio, alongside accelerating infrastructure projects and introducing fresh subsidies for less polluting and more efficient cars and electrical goods.

“Both markets [copper and aluminium], but aluminium especially, should see support after reports that China wants to revive a cash-for-clunkers scheme for rural residents, which will help boost auto sales and form part of a broader package to stimulate domestic consumption,” ANZ Commodity said in a report.         

The euro strengthened for the second straight day although gains were marginal - it was last at 1.2559 against the dollar.

"The euro/dollar pair appears to have found some temporary footing after dipping to a very brief low of $1.2496,” Credit Suisse said. “While technicals remain broadly negative, spot appears over-sold in the short term.”

Disquiet is building regarding Spain’s economic health. Yields on the country's 10-year bonds peaked at a 2012 high of 6.47 percent yesterday, edging close to the seven-percent level at which Greece, Ireland and Portugal required bailouts.

There are few sings of a resolution in Greece's economic and political crisis - polls at the weekend showed voters want a government to keep the country in the euro but the underlying debt problems remain and debt contagion fears are weighing on financial markets

Germany import prices at -0.5 percent came in below the expected reading -0.2 percent. Later today German CPI is due alongside US house prices and consumer confidence.

“Over tomorrow and Thursday we could see some end-of-month interest,” the trader added. "Copper needs to break over $7,800/7,900 but the market is not looking too short."


METALS TICK UP

Copper at $7,725 per tonne was up $36 on the previous day’s close. Stocks rose a net 2,750 tonnes to 225,800 tonnes due to a 2,750-tonne rise in warrants at Singapore and a 1,025-tonne increase in Gwangyang. Cancelled warrants at 22,925 tonnes are down 7,025 tonnes, with the bulk of metal booked for removal at US locations.

In news, a fire has broken out at Xstrata’s offices in Espinar, Peru, and a local official has been taken hostage as protesters seek compensation for alleged mining pollution by the company’s Tintaya copper mine since May 21, Fairfax reported.

Aluminium peaked at $2,033.25 but has since stepped back to $2,026, still up $4. Inventories at 4,937,600 tonnes fell 7,725 tonnes, with no locations increasing stocks. Cancelled warrants at 1,791,350 tonnes were also lower, falling 7,625 tonnes.

Lead gained $7.50 to $1,949 after stocks at 350,825 tonnes fell 1,975 tonnes, while cancelled warrants are at 68,525 tonnes.

Zinc at $1,915 was up $5, while stocks declined for the sixth consecutive day to 937,675 tonnes, down 1,375 tonnes. Cancelled warrants at 65,700 tonnes were down 1,375 tonnes.

Nickel is holding above $17,000, climbing $72 to $17,072. Inventories fell just 18 tonnes to 106,104 tonnes. Tin at $20,000 was $205 higher, with fresh money flowing into the contract. Inventories were down 40 tonnes at 13,355 tonnes.

“Open interest in LME tin futures increased by 1,129 lots to 7,469 contracts in the week ended May 24, the highest reading since February 10,” said John Meyer at Fairfax. “Higher open interest amid rising prices - up 0.5 percent in the week ended May 24 - signal new long positions in the market.”

Steel was quoted at $415/450, while in the minor metals cobalt was indicated at $29,750/30,000 and molybdenum at $29,000/30,000.


(Editing by Mark Shaw)

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