LME MORNING - Copper drags base metals lower, dollar commodities hit by sell-off

By: Kathleen Retourne

London 14/05/2012 - Base metals have started the week under pressure, tracking lower on Monday morning when investors dropped risky assets amid a weakening euro and worsening market sentiment.

An announcement from China that it will cut its reserve ratio for banks did little to improve sentiment, with copper dropping below $8,000 per tonne.

The People's Bank of China said on Saturday that it would cut its reserve requirement ratio for the third time in six months by 50 basis points from May 18, which frees up funds that can be loaned out by the banking system. The announcement came after weaker-than-expected April macroeconomic data.

“[I am a] bit surprised as I thought that the Chinese announcement would be positive - the last few times have been bullish and I thought that would be happen again today but it was overshadowed as wider sentiment is just so poor at the moment,” a trader said.

Many interpreted the move from China as confirmation of concerns about growth in the world's second-largest economy since it came so closely on the heels of a very disappointing slate of Chinese economic data last week; metal prices tumbled after a brief rally near the start of trading.

“On the manufacturing side it is also clear that there is some reduction in China’s economic dynamism. Copper production in April, for example, was 3.7 percent down on the previous month’s figure at 491,000 tonnes, according to the National Bureau of Statistics. Aluminium production was also slightly lower month-on-month, though it basically remains at a high level,” Commerzbank said.

Over in the eurozone, Eurogroup finance ministers are set to meet in Brussels today. After Greece failed to reach an agreement on a coalition government on Sunday, talks are expected to be dominated by the escalating concerns that Greece will either default on its bailout fund or withdraw from the eurozone altogether.

Spanish woes are far from over - 10-year bond yields were up 25 basis points this morning, while protestors have once again taken to the streets as the country drops back into its second recession and unemployment continues to grow.

Newly elected French President Francois Hollande is set to meet German Chancellor Angela Merkel in Berlin tomorrow to discuss austerity measures. Meanwhile, Merkel’s conservative party was hit by slump in popularity in the state of North Rhine-Westphalia during elections on Sunday.

“Merkel is not doing well in the local elections, Greek issues are not going away and the French election is still causing concerns,” the trader added. "I can’t see anything positive on the horizon at the moment."

The euro is currently at 1.2877 against the dollar after earlier dropping t $1.2859 - the lowest level in nearly four months.


Copper lead the complex lower, dropping to its weakest since January 13 at $7,813 before settling at $7,858 per tonne, down $156 on Friday’s close. Volumes are already high, with weak prices and poor sentiment triggering a sell-off - around 17,100 lots have changed hands on Select so far.

“It’s not looking bright - all dollar commodities are under pressure. I suspect copper will head lower unless there is some bullish signal. We might get a few technical rallies but these will be sold into quite quickly,” the trader added.

Tightness remains in place on nearby spreads ahead of May’s “Third Wednesday” this week. The 'TOM/Next' (tomorrow/next day) spread is at $5.00 backwardation, cash/June is at $40 back and cash/threes at $95 back.

Aluminium is also soft at $2,024, down $21. Earlier it fell to $2,019, very close to January's lows of $2,016. Inventories are down 1,225 tonnes to 4,949,900 tonnes, with 3,025 tonnes booked for removal in Detroit and 3,000 tonnes in Vlissingen.

Johor stocks, however, increased 8,500 tonnes to 216,325 tonnes, of which 87,400 tonnes are cancelled warrants. Global cancelled warrants at 1,562,825 tonnes were down 3,700 tonnes.

Nickel is back below $17,000 at $16,996, down $199. Stocks at 106,230 tonnes were down 72 tonnes but remain high, while cancelled warrants at 5,490 tonnes were up 30 tonnes.

“Nickel stocks remain high and the fundamentals are not great," the trader noted.

Tin is down $255 at $20,220. Stocks were up down slightly at 14,425 tonnes while cancelled warrants increased 1,715 tonnes to 3,840 tonnes due to 3,345 tonnes booked for removal in Johor.

"Indonesia’s [new mining tax regime ahead of a total export ban] should support prices but since the announcement it has not made much difference. I don’t have much confidence in them standing by the agreement - look at when it said it would not export tin unless it hit $25,000, it soon backtracked. Things have a way of finding their way out of the country,” the trader added.

In other metals, lead was down $38 at $2,034 despite a 250-tonne drop in stocks to 352,275 tonnes, the lowest since January 30. Sister metal zinc was also lower at $1,914, a $34 loss. Inventories were down 2,400 tonnes at 930,925 tonnes and cancelled warrants increased 11,500 tonnes.

Steel is soft at $460/495. In the minor metals, cobalt was offered at $30,950 and molybdenum at $30,400.

(Editing by Mark Shaw)