London 18/04/2012 - Base metals were mixed and off their session highs on Wednesday morning while eurozone uncertainty continues to weigh on market sentiment.
After a strong start, European shares eased and the euro dipped back below 1.31 against the dollar - eurozone debt contagion fears refuse to die down despite better-than-expected data from Germany and stronger Spanish bond yields yesterday.
The complex started the week negatively, with copper falling to a three-month low before regaining some lost ground yesterday when the International Monetary Fund (IMF) raised its global economic forecast to 3.5 percent this year from its previous forecast in January of 3.3-percent growth.
In addition, a smooth short-term bill debt auction in Spain - the country raising more money than anticipated at 3.2 billion euros - was enough to ease concerns about the eurozone debt crisis. The real test, though will be tomorrow’s bond auction, which investors will be watching closely.
“Prices rallied on the back of firm equity markets, a successful Spanish bond auction and an upwards revision of the global growth forecast by the IMF, factors which should also lend support to prices over the next few days," Commerzbank said.
“That said, we do not believe the recovery to be sustainable, as risk aversion is generally on the up and uncertainty is growing as the sovereign-debt crisis in the eurozone rears its ugly head again,” it added.
A final boost came from overnight reports suggesting that South Korea would buy Chinese stocks for $300 million within the next three months. This triggered some more frantic buying activity and lifted sentiment in wider markets.
COPPER TIGHTNESS REMAINS, LEAD OPEN INTEREST GROWS
Copper at $8,060 per tonne recently is up $10 on Tuesday's close but down from its intraday high of $8,125.
LME warehouse stocks were little changed this morning, rising a net 75 tonnes to 62,400 tonnes. Gwangyang was the only warehouse to show an increase, rising 3,300 tonnes to 5,900 tonnes. Cancelled warrants were down 2,025 tonnes to 62,400 tonnes.
"Given the pullback in copper to levels not seen since January, it is not surprising there has been some buying interest around and tightness in the spread ahead of the 'third Wednesday' also suggests there has been some aggressive short-covering and rolling forward of short positions," FastMarkets analyst William Adams said. "Whether the tightness now passes remains to be seen.”
Tightness is continuing in the copper spreads, with cash/threes at its highest since the week of October 6, 2008 at a substantial $95/105 backwardation. TOM/next has stepped back from yesterday when it reached $38/40 backwardation to $13/15 back today, Cash/May is now at $69/73 back and May/June is at $19/16 back.
The tightness has been attributed to a short in the Far East that has apparently been rolling the position against finance deals.
“We think the bigger short has some tolerance for pain though and is unlikely to cover unless prices fall below $7500 per tonne,” RBC Capital Markets said.
Aluminium is trading sideways today - it recently traded at $2,082, up $7.50. Inventories were down 8,900 tonnes at 5,071,000 tonnes, with no metal warranted. Vlissingen drew down 3,000 tonnes of stock in line with the increase in minimum load-out rates. Cancelled warrants fell 6,100 tonnes in all.
Zinc earlier peaked above $2,000 but has tracked down to $1,995.50, up just $3.50. Stocks rose slightly, up 700 tonnes at 912,450 tonnes and still at their highest since May 18, 1995. Cancelled warrants were down 700 tonnes at 16,975 tonnes, with Chicago responsible for 650 tonnes.
Lead at $2,075 was unchanged from Tuesday’s close. Stocks were also unchanged at 371,450 tonnes, while cancelled warrants were down 1,350 tonnes at 22,225 tonnes. Open interest has been building in the lead contracts, with May at 7,492 lots - the equivalent of 187,300 tonnes - and June at a substantial 16,552 lots or 413,800 tonnes.
Nickel at $17,850 was up $25, while inventories were 768 tonnes higher at 99,624 tonnes and cancelled warrants at 4,500 tonnes were up 26 tonnes.
Tin is once again the worst performer. Despite yesterday's late brief rally, it is once again back in negative territory at $21,350, down $250. Stocks were up 195 tonnes to 13,470 tonnes, and cancelled warrants were up 25 tonnes to 910 tonnes.
Steel traded at $515 - at the higher end of its recent range - while stocks and cancelled warrants were unchanged from Monday at 30,160 tonnes and 3,380 tonnes respectively.
In the minor metals, cobalt was indicated at $30,250/31,000 and molybdenum at $30,500/32,000.
(Additional reporting by Clara Denina, editing by Mark Shaw)