LME MORNING - Base metals erase losses as dollar bounces, equities rise

London, 13 July 2010 - Base metals erased initial losses in thin LME premarket trading on Tuesday, responding to a small retreat in the dollar and strength in equities but still largely rangebound in thin market conditions.

Copper was just a few dollars down on the day in recent trade while nickel, lead and tin climbed back in the plus column. Volumes remained light due to the start of the typically slower summer period.

"We're just trading at the top end of the current range," an LME trader said. "Stronger equity markets and a slightly weaker dollar are giving the market a fillip."

The dollar index turned slightly weaker against a basket of major currencies, last trading close to 84.10 from 84.50 earlier. The euro, meanwhile, erased losses to stabilise around $1.2590 after drifting close to $1.2520 in initial trade.

In equities, European shares rose 1.7 percent and US markets pointed to a firmer open later on Wall Street, as investors shrugged off potentially worrying macroeconomic news to focus instead on the strong start to the US second-quarter earnings season.

Alcoa, the largest US aluminium producer, posted stronger-than-expected quarterly profit late on Monday and lifted its outlook for global consumption of the light metal. South Korea's Posco, the world's third-largest steelmaker, today reported its highest quarterly profit in nearly two years amid solid demand from automakers and lower costs for materials such as iron ore and coking coal.

Results from Intel Corp are expected on Tuesday, with JPMorgan Chase due to report on Thursday and Bank of America, Citigroup and General Electric all expected on Friday.

Investors shrugged off more bearish news from the eurozone - ratings agency Moody's Investor Service cut Portugal's debt by two notches to A1 and German's ZEW economic sentiment fell more than expected in July by to its lowest since April 2009.

Caution was also evident ahead of Greece's debt auction to raise $1.57 billion and before the results of the eurozone banks' stress tests next week.

Earlier today, Asian equities dropped after China said it had no plans to relax tougher property measures any time soon, raising worries over the impact a growth slowdown in China will have on commodities demand - copper imports unexpectedly fell by 17 percent in June on the previous month.

"On balance, we see the metals as being stuck in consolidation mode," noted William Adams of FastMarkets. "They tried higher last week but have run into resistance and now seem to be on course to test where underlying support is, so we will watch with interest to see how much support there is at the various support levels."

FUNDAMENTALS SUPPORTIVE

Fundamentally, base metals were supported by data showing LME stock declines for all metals and alloys but steel. Copper stocks, especially, fell for the 18th day in a row, raising expectations that declines will extend through the usually slow summer.

Copper cut losses to $6,623 per tonne, down just $7 and above an earlier trough of $6,560, as stocks fell a net 2,700 tonnes to 432,550 tonnes, the lowest since November 26, 2009. It remained well under its pre-weekend 10-day high of $6,775, however.

"Resistance should be encountered at $6,680/6730 with local support having already been tested around $6,580 and held," the floor trader said.

Stocks may be spared the usual summer trend reversal this year in which inventories suddenly build up and physical premiums fall, as manufacturers are set to stay open for longer to benefit from the current economic recovery, market participants said. But this may be premature - the trend reversed direction last year on July 15.

The rest of the base metals also gained ground in recent trade, with nickel bouncing back to $19,350, up $150. Inventories fell for the 25th successive day, showing resilience to a slight slowdown in stainless steel demand and news of a strike resolution at Vale's Sudbury operations. Stocks fell a net 276 tonnes to 119,964 tonnes, a fresh low since the end of September last year.

A one-year strike continues at Voisey’s Bay in Northern Labrador, Vale said on Tuesday, with negotiations set to resume on July 19.

LME aluminium was still $6 down at $1,966 after stocks fell a net 6,375 tonnes to their lowest since June 2009 at 4.383 million tonnes but cancelled warrants - the metal earmarked for removal, dropped 2,975 tonnes.

Tin bounced back to $17,700, up $175, after stocks fell a net 145 tonnes to 16,205 tonnes, the lowest since June 2009.

Lead, which dropped 3.3 percent in the previous session, steadied to $1,795, up $10.50, while zinc cut losses to $1,840, still down $15.50. Med steel billet was up $7 at $427/432.50 even though stocks rose a net 1,040 tonnes to a two-month high of 32,110 tonnes.

In the minor metals, cobalt was $100 lower at a wide $37,000/43,000, while molybdenum eased further to $29,750/34,000 after trading at a contract low of $30,000 on Monday, with stocks rising 12 tonnes to a record 198 tonnes today.

(Additional reporting by Martin Hayes. Editing by Mark Shaw)

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