LME MORNING - Base metals consolidate gains, copper and aluminium below fresh highs

London 11/10/2010 - Base metals consolidated their early gains during Monday morning LME trading, having earlier set new highs in some, underpinned by current strong sentiment as LME Week got underway here.

"They are consolidating now but this strength is all about dollar debasing. And if you want risk, then commodities is the place to be," analyst Nick Moore of RBS said.

The latest gains followed the sharp upturn from late pre-weekend trading as the dollar remained weak and equities advanced.

Both copper and aluminium rose again, hitting fresh 26- and five-month highs respectively. The trend - other metals also advanced in the complex - reflected continuing dollar weakness - the US currency reeled on Friday after disappointing September non-farm payrolls figures, suggesting that the US employment market is still fragile.

For the metals, the dollar's recent run of sharp declines has been instrumental in the moves to multi-month highs ahead of LME Week.

"In mid-year, prices had been declining and the mood was black and bearish with fears of a double-dip recession in the West and a China ‘crash’ reaching their peak," broker Macquarie said. “At that time, falling open interest and falling prices pointed to large fund shorts. More recent data shows short-covering and now outright longs.”

Meetings of G7 and IMF officials over the weekend in Washington produced no quick fix for global economic imbalances. This, and the poor US jobs data on Friday, raised the chances the Federal Reserve would inject fresh funds into the economy as soon as its November 2-3 meeting.

The dollar was again flirting close to the eight-month lows hit last week at 1.4040 against the euro, trading around 1.40 initially and settling at 1.3945.


PHYSICALLY BACKED ETFS PROVIDE BOOST

News that ETF Securities is preparing to introduce a range of physically backed base metals exchange-traded commodities (ETCs), which confirmed market speculation, did not have an immediate impact - this had been factored in to prices, analysts said.

The industrial metal range of ETCs will include physical aluminium, copper, lead, nickel, tin and zinc, as well as a basket consisting of all six metals, ETF said in a press release on Monday.

Some said prices have become overextended across the complex on the charts so a technical reaction is overdue. Whether this unfolds soon depends on the mood surrounding the various LME week events.

"While the financial community is now long, many funds remain ‘under-invested’, according to some, so the potential for further fund-induced price recovery is strong," Macquarie added.

The data flow is light today; attention will be directed towards the middle of the week and key figures from China, analysts said.

"Chinese preliminary trade data for September due on Wednesday will mark the next event risk. We retain our positive short- and medium-term view on the sector," broker Credit Suisse said.


COPPER NEARS $8,400

In the metals, copper jumped to a fresh two-and-a-quarter-year high of $8,388 per tonne at one stage before settling back at $8,330, still up $31 from Friday. There was a 475-tonne increase in warehouse stocks.

Aluminium moved up to $2,438 and then held at $2,424, up $4 from the previous close, slowly building a base above the $2,400 level. Inventories fell for the 18th day in a row - down a net 4,025 tonnes to 4.327 million, a fresh low since June 2009.

Elsewhere, tin was consolidating its current fundamentals-based run - it hit all-time high last week of $26,790. Business at $26,300 was down just $50. Stocks dropped 20 tonnes to 12,225 tonnes, a new low since May 2009.

Zinc traded at $2,329 up $28, with stocks down 875 tonnes at 610,850 tonnes, the eighth successive daily decline. Lead business at $2,300 was up $30 from Friday.

Nickel traded at $24,450 against a previous $24,400 - it is still consolidating after hitting $25,200 in the middle of last week, its highest since early May, with a 252-tonne stock rise seen.

Steel was $450/470 against a previous $460/465, with stocks falling a heavy 3,835 tonnes. Cobalt was quoted at $38,000/39,000 per tonne while molybdenum was indicated at $30,500/37,500.



(Editing by Mark Shaw)

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