LME MORNING - Copper leads base metals higher on supply woes, short-covering

London, 19 July 2010 - Base metals edged up during LME premarket trading on Monday, led by a rally in copper on short-covering, another counter-seasonal inventory decline and reports of mine shutdowns at Codelco.

In addition, financial markets turned mildly bullish - European shares reversed higher after a weak start and the euro rebounded towards last week's two-month highs.

"It's a combination of things - the strong euro, Codelco Norte [reportedly shutting down] and the continued drawdown of stocks," an LME trader said.

Bargain-hunting was also seen after the heavy price falls of the previous session, when copper lost about three percent following poor US consumer sentiment data.

Today, the red metal rebounded to about $6,500 per tonne, helped by reports that Chile's Codelco had to halt mining operations at Radomiro Tomic, Chuquicamata and part of the Mina Sur mines on Sunday after strong winds lowered visibility.

The three mines are part of Codelco Norte division, the giant's biggest copper unit that produces around 870,000 tonnes per year. A spokesman at Codelco's London office was unable to confirm the closures.

Short-covering was also evident, with pricing against the July 'third Wednesday' cash prompt taking place later today, but the metals complex looked set to remain choppy.

"Friday's dip will likely draw some bargain-hunting interest given last week's growth data from China and the improving macroeconomic picture in Asia; however, the complex remains vulnerable to liquidation as the summer holiday season approaches," FastMarkets analyst James Moore said.

In wider markets, China's key stock market rose 2.1 percent on Monday, boosted by expectations that the government will maintain stable economic policies for the rest of the year and that cooling measures in the country’s property sector would not be as severe as expected.

China's economy was responding appropriately to stable policies, Premier Wen Jiabao said on Sunday, adding "relatively fast" growth would help create jobs and boost domestic demand.

In Europe, shares turned slightly positive after a weak opening and the euro bounced from an earlier trough of $1.2871 to $1.2950 in recent trade.

The single currency remained below a two-month high of $1.3006 hit on Friday, however, after Moody's downgraded Ireland's sovereign rating to AA2. But strength re-emerged as investors were confident ahead of the results of the European bank stress test on Friday.

There is little major economic data due this week although more second-quarter corporate earnings are set for release, including IBM later today, Apple on Tuesday and Caterpillar on Wednesday.

US building permits and housing starts are also due tomorrow with existing home sales for June and leading indicators topping off the week as investors look towards greater clarity on the US housing market.


Copper rose $40 to $6,525 per tonne as LME inventories fell for the 22nd day - down a net 3,575 tonnes to 422,850 tonnes, their lowest since November 20 last year. The downtrend in stocks despite the start of the traditionally slow summer period reflects strong physical demand.

"We expect physical buying to remain robust as wide spreads between metals prices in London and Shanghai continue to favour imports into China," Credit Suisse said.

Arbitrage buying from China amid a favourable price differential between London and Shanghai also helped prices.

"As the price of copper fell last week at a weaker rate in Shanghai than it did in London, Chinese traders are buying copper at cheaper prices in London to sell it subsequently at a more expensive rate in Shanghai," Commerzbank said. "Furthermore, speculative financial investors are becoming more bullish about copper again."

Elsewhere, aluminium rose $1 to $1,979, stabilising below Thursday's one-month highs above $2,030 and fighting a weakening technical picture.

Tightness around August/September eased slightly today, showing a small $0.25-0.75 backwardation against a $1-$2 premium on Friday. Here, inventories declined by a net 6,325 tonnes to 4.368 million tonnes, the lowest since the end of June 2009, but cancelled warrants - the metal earmarked for removal - fell more than 6,000 tonnes or 2.3 percent.

Nickel rose $40 to $18,990 as inventories fell a net 534 tonnes to 118,536 tonnes, the lowest since late September 2009, although cancelled warrants dropped 8.6 percent. The global nickel market was in 4,000-tonne surplus in May after recording a 2,600-tonne deficit in April, according to the International Nickel Study Group.

Tin climbed $150 to $17,900 even though stocks rose a small 40 tonnes from what was a 13-month low of 16,035 tonnes - they now stand at 16,075 tonnes - as cancelled warrants rose three percent.

Indonesia's refined tin exports fell 7.3 percent in June to 8,029.92 tonnes on the corresponding month of 2009, according to trade ministry data.

Zinc was up $8 at $1,805 and lead climbed $4 to $1,774, with stocks falling 225 tonnes and 200 tonnes respectively. In steel, Med billet has been neglected so far - it was indicated at $437/450 after hitting a three-week peak of $445 on Friday.

In the minor metals, molybdenum was quoted at $30,500/33,900 per tonne from a previous close of $29,500/33,500, while cobalt was indicated at $36,800/40,000, down $200.

(Editing by Mark Shaw)