LME MORNING - Metals crumble as eurozone woes inflamed, nickel hits three-year low

By: Martin Hayes

London 23/07/2012 - Base metals fell heavily during Monday LME premarket trading, with sentiment markedly deteriorating in tandem with wider financial markets, where eurozone tensions were rampant, triggering losses, traders said.

"It is a 'risk-off' Monday morning - the Far East markets were lower and that contagion of eurozone fear meant that everything got a slap today," one said.

In the metals, nickel fell to a three-year low of $15,450 per tonne, tin hit its weakest for 10 months at $18,011, copper, aluminium and zinc all fell to their softest since late June and lead hit its cheapest for two-and-a-half weeks.

Widespread diversification away from risky assets - all commodities were retreating - into safe-haven instruments took place amid fresh concerns over Spain and Greece - the euro hit 25-month lows of 1.2080 at one stage.

Spanish borrowing costs soared - yields on 10-year bonds - jumped above the seven-percent danger level, while the pending visit of the European Commission, ECB and IMF to Greece tomorrow is also causing jitters.

"The marked rise in risk aversion brought about by the renewed flaring up of the debt crisis in the eurozone, coupled with a firm dollar and weak Asian equity markets, is weighing on metal prices," broker Commerzbank said.

Downside technical pressures are mounting - a range of floors has been breached, while sentiment in the complex is likely to be increasingly driven by newsflow and macroeconomic drives as the fallow third quarter physical demand period kicks off. The focus will swing between economies and divergent trends.

Spain is the eurozone's fourth-largest economy - there are concerns now it may be forced to follow Greece, Portugal and Ireland, who were bailed out by international lenders after their borrowing costs hit unsustainable levels. In Spain, two indebted regions are now seeking financial aid from the central government.

"Given the pressures on global macroeconomic activity and the potential impact on metals demand due to summer slowdowns, we see the sector as a whole vulnerable to further pressure, with a breach of support levels opening the door to another leg lower," James Moore, analyst at FastMarkets, said.


Copper fell conclusively below $7,400, losing a further 2.3 percent after falling more than two percent on Friday. The market hit $7,367.75 and then settled at $7,390, down $155. In warehouse data, stocks fell a net 675 tonnes to 252,550 tonnes.

Nickel collapsed to $15,450 at one stage - Friday's downside disintegration below $16,000 continued, with recent business at $15,630 down $320 from the previous close.

"There was an early flush-out there and that hit the sell-stops - it is actually coming back a bit now," the trader added.

Inventories fell for the second day in a row - down 36 tonnes at 110,622 tonnes - but remain close to 13-month highs.

Aluminium fell as low as $1,864 and then settled at $1,873, a $22 loss. Stocks climbed to their highest for one month - up 18,075 tonnes at 4,850,500 tonnes, due to a 23,525-tonne warranting in Vlissingen, which now holds 1.14 million tonnes of the stockpile.

In other metals zinc was trading at $1,813, a $26 loss, while inventories were down 3,875 tonnes at 1,011,200 tonnes. Lead traded at $1,860, down $41, while stocks were down 1,975 tonnes at 336,350 tonnes.

Tin, like nickel, was hit by sell-stops, falling as low as $18,011 and then trading at $18,400, still down $530.

Steel billet was steady at $400/420, cobalt was indicated at $27,300/28,200 and molybdenum was neglected.

(Editing by Mark Shaw)