LME MORNING - Metals race higher again on upbeat mood, copper sets pace

London, 28 July 2010 - Base metals recovered from the brief pause in the previous session, with fresh advances notched up during Wednesday morning LME trading on continued strength in the euro and macroeconomic sentiment that remains upbeat.

Copper led the way, hitting fresh 11-week highs just $2 below $7,200 after another warehouse stock decline, while aluminium and zinc also scaled new multi-month peaks.

Trends in wider financial markets provided a positive backdrop, with European shares holding gains of 0.3 percent, while the euro was steady after solid US and European company earnings and an assurance from China on the economic growth outlook.

The euro touched $1.3040, close to yesterday's 11-week high of $1.3045, and was recently trading around $1.3000.

China's economic growth will slow but there will be no double-dip recession and therefore the country will maintain a moderately loose monetary policy to year-end, Zhang Tao, head of the central bank's survey and statistics department, said on Wednesday. This helped raise market optimism that the global economy is on an uptrend.

"While growth momentum is moderating in the US and globally, a double-dip economic scenario is unlikely," broker Credit Suisse agreed. "We retain a positive medium-term outlook on the base metals sector - demand is improving as reflected by falling inventories."

Investors will be watching the data flow today for US durable goods orders in June, which may shed some light on the health of the world's largest economy after data on Tuesday showed that July US consumer confidence plunged to its lowest for five months.

"A disappointing reading for today's US durable goods orders for June could incline investors to take profits, which could be followed by some consolidation in the days ahead," Credit Suisse warned.

The outlook further forward is not completely assured, others said, and price advances will remain susceptible to economic hiccoughs.

"Although there are signs of an upturn in demand on the metal markets, there are still dark clouds on the horizon," Commerzbank said, pointing out that steelmakers ArcelorMittal and Nippon Steel have both said they expect a difficult second half.

"An abatement of demand dynamics should also have an impact on raw material prices... The most recent price recovery might therefore be short-lived," it said.


Copper rose nearly two percent at one stage to $7,198 per tonne, its best since May 10, before settling back at $7,160, up $101. Stocks fell a further net 2,375 tonnes to 411,425 tonnes, a fresh low since mid-November 2009, with cancelled warrants - the metal earmarked for removal - also rising 2,050 tonnes.

The current stock trend raises speculation that inventories may be spared the usual summer bounce amid tightening fundamentals. This suggests stronger physical demand than is usual at this time of the year, when factories tend to close for annual maintenance and holidays.

Aluminium hit a two-month peak of $2,086 and then traded at $2,074, still up $18. Warehouse stocks dropped a net 4,650 tonnes to 4,395,125 tonnes.

Technically, the market still has a lot of work ahead if it wants to extend the rally - it must break though resistance at $2,095 and the psychological $2,100 mark before it can look at taking out the 100 and 200 DMAs in the $2,115-2,120 region.

Nickel dipped to $20,500, down $50, after stocks recorded their first increase in 36 sessions - prices had earlier flirted with yesterday's eight-week peaks of $20,975

inventories rose a net 384 tonnes from what was their lowest level since September 2009 to stand at 116,334 tonnes. This could be the first sign that fundamentals are loosening amid weaker stainless steel demand, the end of the year-long strike at Vale's Sudbury operations and a resumption of shipments from Russia’s Dudinka port.

Zinc hit a two-month high of $1,967.75 before settling at $1,950, up $40. Lead briefly neared the 11-week peak of $2,018 reached on Tuesday before trading at $1,991, up $14. Tin was trading at $19,500, up $160.

Med steel billet was little changed after inventories rose another 585 tonnes to a fresh record high of 56,940 tonnes amid rumours of continuing warranting against delivery of a forthcoming short position. Business was seen at $460, up $2

The Mediterranean contract is to merge with its dormant Far East counterpart today to create a global billet contract - the 4,810 tonnes of billets stored in warehouse for delivery against the Far East contract will be added to the Med stockpile by the end of week.

Cobalt was quoted at a steady $37,000/41,600 per tonne, while molybdenum was indicated at $31,300/32,500 against a previous $32,000/32,500.

(Additional reporting by Perrine Faye. Editing by Mark Shaw)