LME MORNING - Metals off highs as dollar cuts losses, copper off record peak

By: Martin Hayes

London 19/01/2011 - Base metals reversed direction in Wednesday pre-market trading on the LME, pulling back as the dollar clawed back some ground on foreign exchanges, while a sobering daily inventory report also curbed initial upside momentum in the complex.

"As always, with the currency in play it gets a bit bumpy. It is mostly money flows related to [dollar movements]," a trader said.

Copper earlier hit a fresh record high of $9,781 per tonne, while nickel was around 8eight-and-a-half-month highs before the pullback. But declines were relatively shallow as was the case on Tuesday when profit-taking was evident.

"We are still looking for LME metals prices to pull back ahead of the Chinese New Year, but the market looks surprisingly robust, and we are beginning to wonder if this will now happen," John Meyer of broker Fairfax said.

The euro traded as high as 1.3501 against the dollar at one stage, its best since late November, and then settled around 1.3450 - yesterday it was some 1.3370. Although the single currency has staged a mini-rally this week, it remains vulnerable to sovereign debt concerns in many eurozone countries.

Analysts said bouts of profit-taking have only briefly interrupted the bullish moves in copper and, to a lesser extent, sympathy advances in the other metals. Technical momentum is in place at present, although the complex will be wary of kneejerk responses to sudden currency shifts or economic events - both of which loom later this week.

"Given the uptrends, further gains seem likely across the board until some development emerges to knock confidence again," William Adams of FastMarkets said.

On the data side, metals-sensitive US housing starts and building permits are scheduled for early afternoon. Thursday sees a string of economic releases from China, the world's top consumer, followed by US weekly jobless figures.


Copper, after setting its new record at $9,781, retraced to $9,718, up $18 still. Warehouse stocks climbed a net 3,825 tonnes to 381,750 tonnes, the highest since September 2010. 

In recent sessions, copper has set the pace in the complex, with traders anticipating a move towards $10,000 if current strong prices are built upon. But the drive is coming from the speculative community, with consumer interest slow - China has not been evident for several weeks now on the buy side.

"Prices continue to rise despite an apparent lack of consumer demand. Short positions might need to 'stop out' if copper rises much further, creating the potential for a price spike," Meyer added.

Lead, which had been near $2,650, fell to $2,605 per tonne and then traded at $2,607, a $16.50 loss. Stocks rose for the fourth day in a row - up a hefty net 17,975 tonnes to 261,925 tonnes, the highest since late-May 1995, due to warrantings in Singapore, Johor and Baltimore.

Stocks have jumped more than 50,000 tonnes or 24 percent this week, with metal being relocated for warehousing or financing purposes.

Aluminium was $16 higher at $2,466. Inventories saw their habitual rise during the week of 'third Wednesday' pricing, climbing a net 23,700 tonnes to 4,485,675 tonnes, the highest since mid-June 2010, with more than 24,000 tonnes registered in Baltimore.

Elsewhere, zinc was unchanged at $2,436 - stocks held at 711,125 tonnes, the highest since October 2004. Tin traded at $27,000, up $75.

Nickel, where the impact of the severe flooding in Australia has triggered uncertainty over some raw material availability, was trading at $26,150, up just $50.

"Australian floods may disrupt some base metal production, but the impact on consumption should outweigh this in the short term. Longer-term, the market may be focussed on the reconstruction of flood affected areas," Meyer noted.

Steel billet traded at $585, up $20, with a 650-tonne stock outflow seen.

In the minors, molybdenum stocks fell six tonnes or one lot to 282 tonnes, the first movement since September. The market was steady, with a bid at $36,800.

Cobalt was $800 lower at $38,000/39,683. Stocks held unchanged at a record 286 tonnes but cancelled warrants rose 18 tonnes to 82 tonnes.

(Editing by Mark Shaw)