LME MORNING - Copper fluctuates around $7,400/t, rest in sideways mode

By: Kathleen Retourne

London 04/06/2013 - Base metals were mixed in Tuesday’s premarket, consolidating after the previous day’s rally and looking to wider markets for more clarity.

"The strength in the base metals has been led by aluminium, zinc and lead but their run of strength now seems to be waning and prices are consolidating," FastMarkets analyst William Adams said.

"We generally still see the base metals as likely to remain rangebound but we have not been surprised to see prices edge higher within recent ranges," he said.

This morning, trends in other markets were less assured - the euro was holding around 1.3079 against the dollar, while equity markets in Europe were higher in early business.

“Metal prices made pronounced gains across the board yesterday afternoon despite obviously weaker economic data having been published in the US,” Commerzbank said in a note.

“This indicates that business in US industry is contracting. That said, the figures simultaneously sparked hopes that the US Fed would not terminate QE3 prematurely. Ultimately, base metals have also profited from this,” it added.

For the short term, prices may look to consolidate ahead of Wednesday's LME June traded option expiries and a raft of mid-week US employment figures building up to Friday's keynote May non-farm payrolls report.

Underlying concerns remain about the US Federal Reserve’s quantitative easing (QE) programme and the likelihood that it will be tapered, possibly before the end of this year. Friday's data, therefore, could have an effect on the duration of its monetary stimulus measures.

Yesterday, the May US ISM manufacturing PMI showed a surprise contraction at 49.0, although readings from other economies were more positive - China's official manufacturing PMI for May yesterday was 50.8.

In data so far today, Spanish unemployment in May fell 98,300 as the holiday season starts. The April eurozone PPI undershot at -0.6 percent but the market largely ignored the disappointing number.

Later, the April US trade balance and the June US IBD/TIPP economic optimism index figures are due.

Copper at $7,400 per tonne was up $60 on the previous day’s close - the red metal earlier peaked at $7,410, the highest since May 23. Stocks fell a net 3,150 tonnes to 614,075 tonnes while cancelled warrants at 225,325 tonnes were down 3,025 tonnes.

Supporting copper prices is news that Freeport-McMoRan's mine in Grasberg will not be able to resume output until an investigation into the recent tunnel collapse is completed in around three months’ time.

“So far, it is not clear how long the [it] will be able to fulfil its contractual delivery obligations, or whether the company will have to declare ‘force majeure’,” Commerzbank said.

A three-month closure would result in the loss of around 140,000 tonnes of copper, Macquarie estimated.

Aluminium at $1,931 was marginally higher, up $4. In the closely watched nearby spreads, the June/July date has tightened to a $2 backwardation. Cancelled warrants dropped back from yesterday’s four-month high, dropping 7,775 tonnes to 2,094,350 tonnes, while stocks fell 1,975 tonnes to 5,196,400 tonnes.

Zinc activity on Select is higher than that of aluminium, with almost 6,150 lots changing hands by 10:30 BST. Prices have stepped back from yesterday’s close, falling $10.50 to $1,943. Stocks and cancelled warrants both fell 4,025 tonnes to 1,082,325 tonnes and 736,700 tonnes respectively.

Lead was also lower, falling $12 to $2,212 after stocks fell for the 14th consecutive day, down 3,450 tonnes at 213,550 tonnes now.

Nickel at $15,255 was up $70 despite a 360-tonne stock rise to 180,432 tonnes and a 1,746-tonne fall in cancelled warrants to 23,382 tonnes. The metal rose on Monday on reports that China's SRB had made purchases of nickel, as well as expressing an interest in copper.

Tin at $21,135 was down $115 after a 175-tonne increase in stocks to 14,085 tonnes. In the minor metals, six lots of cobalt have traded this morning, the last at $30,000, while stocks rose two tonnes to 417 tonnes. Molybdenum was neglected.

(Additional reporting by Martin Hayes, editing by Mark Shaw)