LME MORNING - Metals tumble as eurozone woes weigh, lead and zinc hit weakest since mid-2010

By: Martin Hayes

London 20/10/2011 - Base metals sped lower across the complex during Thursday LME pre-market trading, with sentiment having turned increasingly negative on growing doubts that the forthcoming EU summit will adequately tackle the eurozone debt crisis.

Weak equity markets - losses above one percent were seen in major European indices - provided a gloomy backdrop, which was exacerbated in the metals complex by technical pressure and CTA sales, traders said.

Copper fell nearly four percent at one stage to a two-week low, with aluminium and nickel likewise hitting levels last seen early in October. Losses in other metals were more wounding - zinc crashed five percent to a 16-month low, while lead hit its softest since July 2010.

The complex remains gripped by uncertainty and, with wider macro-economic sentiment on balance biased to the downside, volatile conditions could see further pressure lead to more sustained losses while rallies are stumbling, traders said.

"As long as the news situation remains negative, metal prices should stay below pressure for some time yet. Bullish news such as a surprisingly sharp rise in US housing starts in September is not receiving much attention on the other hand," broker Commerzbank said.

Sentiment is increasingly being undermined by doubts that a convincing plan to deal with the eurozone debt crisis would emerge from the upcoming EU summit after French president Nicolas Sarkozy said on Wednesday that France and Germany are in disagreement above how to increase the size of the EU bailout fund.

"Over the next few days the only thing that looks certain is further volatile trading. The situation in Europe is so critical and the pledges to come up with a deal so pronounced that you have to expect EU policy makers to come up with something – even if it just buys more time," William Adams of FastMarkets said.

Later in the session, several US data releases will be released, which will add to market jumpiness. Figures include the October Philly Manufacturing Index, the September CB Leading Index, September figures on existing home sales and weekly unemployment claims.


Copper hit a two-week low of $6,925 and then clawed back up to $7,000, still a hefty $210 loss from the Wednesday close.

The market paid little heed to inventory data - LME warehouse stocks fell a net 1,325 tonnes to 450,850 tonnes. Cancelled warrants - the metal booked for removal – also jumped 38 percent to 53,000 tonnes, due to a 15,000-tonne cancellation in Singapore.

For now, prices are holding above the recent 15-month low of $6,635, given that there are supply-side problems in Peru and Indonesia, but the downside is vulnerable to a sustained break lower, traders said.

"Support levels show as $6,635, $6,450 - then nothing until $6,000-6,050," one said.

Zinc was holding above early 16-month lows - prices had fallen five percent to $1,746 - but trade at $1,790 was still down $48, with the resumption of stock falls doing little to reverse the trend. Inventories, which rose yesterday to bring to an end a 14-day run of declines, fell 2,025 tonnes to 792,650 tonnes, the lowest since April 19.

Lead was cutting losses after touching a 15-month low of $1,796.50 earlier, with business at $1,833 still down $37. Inventories fell 425 tonnes and have now fallen on two of the past three days. But at 387,925 tonnes, the stockpile remains just 575 tonnes below the all-time high set on Monday.

Aluminium fell $2,145 and then moved to $2,164, down $18. Inventories fell 1,750 tonnes to 4,569,875 tonnes. Nickel traded as low as $18,160 before recently changing hands at $18,343, down $457. Stocks fell 990 tonnes to 88,488 tonnes, the lowest since February 2009 again.

Tin, which was the sole metal to rally on Wednesday, also fell this morning, with business at $21,500, down $425. Stocks fell 75 tonnes to 17,800 tonnes, the lowest since early March.

Steel traded at an unchanged $530, while the minor metals were neglected.

(Editing by Mark Shaw)