LME MORNING - Base metals tread water, await further direction

By: Kathleen Retourne

London 02/07/2013 - Base metals were holding onto the previous day’s gains on Tuesday morning, although price movements were minimal.

In data yesterday, manufacturing PMIs from the EU and US looked to be improving and weak readings out of China seemed to have been priced in already.

“We believe there will be a series of relief rallies with prices looking near the bottom, but any upside will be short-lived given the weaker outlook on China,” ANZ Research said in a note.

FastMarkets analyst William Adams attributed the rebounds across the metals not to yesterday’s generally constructive data but to the fact that many markets had become oversold.

"Bargain hunting has given prices some direction and that no doubt is prompting short-covering, which is fuelling the rebounds," he said. "Although we would not be surprised if the rebounds go further, we do not expect these to turn into bull markets per se given the overall fundamentals."

The market was also looking ahead to Friday's June US payroll figures, which may have an even bigger impact on the duration of the US Federal Reserve's quantitative easing measures. Wednesday will provide a possible early indicator of that reading in the private-sector ADP non-farm employment change

In data already released today, the Spanish unemployment change surprised to the upside at -127,200 against an expected -83,500. But the EU PPI for May disappointed at -0.3 percent - it was forecast to come in at -0.2 percent.

Other data releases scheduled for Tuesday include May US factory orders, the July US IBD/TIPP economic optimism index and June US total vehicle sales.

Copper at $6,969 per tonne was $10 lower, with some 10,000 lots changing hands on Select so far. Tightness is creeping into the forward spreads, with cash/July at $3.00 backwardation, July/Sept at $7.00 and August/Sept at $7.25. Stocks fell for the sixth consecutive day, dropping 3,075 tonnes to 659,200 tonnes.

 Aluminium edged $9.50 higher to $1,837 although stocks fell 5,500 tonnes to 5,444,675 tonnes. Cancelled warrants - metal booked for removal and in queues - at 2,272,500 tonnes were down 6,350 tonnes.

Aluminium producer UC Rusal has called on its competitors to cut more output bid to drive up prices. Rusal puts the average production costs in the sector at $2,300 per tonne.

“The company estimates that the production cuts announced to date could allow the price of aluminium to climb to $2,100 by year’s end, said Commerzbank. “If its words were actually to be followed by action, we would also regard price rises as probable. In the fourth quarter we see the aluminium price at an average of $1,950.”

Zinc slipped $1 to $1,889 despite a 5,675-tonne fall in inventories to 1,050,400 tonnes. Cancelled warrants dropped 5,250 tonnes to 681,375 tonnes. Lead at $2,102.50 was up $15 - stocks movements were routine.

Nickel was last at $14,015, a $50 increase. Stocks rose 936 tonnes at 188,652 tonnes and cancelled warrants fell 894 tonnes to 23,574 tonnes. Tin climbed $141 to $20,111 141. Cancelled warrants dropped for the third consecutive day, losing 1,940 tonnes to 2,685 tonnes.

Steel was indicated at $100/210 and cobalt at $29,500/32,800, with a three-tonne increase in stocks to 467 tonnes and a two-tonne drop in cancelled warrants to 134 tonnes. Molybdenum was neglected.

(Editing by Mark Shaw)