LME MORNING - Metals extend losses on strong dollar, copper subsides ahead of option expiry

London 05/01/2011 - Base metals extended the previous day's late downswing during Wednesday LME pre-market trading, undermined by a strong dollar, corrective sales and pre-option expiry nervousness.

A generally negative daily warehouse inventory report - lead stocks jumped to a 15-year peak - also did little to cheer up the short-term mood.

Copper lost further ground from Tuesday's new all-time best of $9,754 per tonne amid option-related sales as the market tumbled below $9,500. Lead and zinc were well off the previous session's seven-week peaks, while nickel fell away from yesterday's eight-month highs.

"The metals are under pressure while the dollar is firmer," analyst William Adams of FastMarkets said.

The downside correction was not unexpected, analysts said, given the price surges either side of the end-2010 holiday.

"The macro-economic environment remains favourable... We retain our positive outlook on metals," broker Credit Suisse said.

The dollar was trading around a firm 1.3250 against the euro amid further evidence that the US economic recovery is developing - US factory orders unexpectedly rose 0.7 percent in November, beating the consensus forecast of a fall of 0.3 percent.

But there are likely to be hiccoughs ahead - the release late on Tuesday of minutes from the Federal Reserve's meeting in December showed that the Fed felt the US economy still needed help despite signs of strength.

"The FOMC minutes suggested growth is returning to the US, as recent data suggests too. This should be good for metals, although maybe they have discounted this already and there may be a feeling that stronger economic growth could see some money move out of alternative investments such as commodities," Adams said.

On the US data side later today, ADP Employment and ISM Services figures are released, building up to Friday’s non-farm payrolls report, with economists expecting 135,000 jobs to have been created last month.


Copper spun below $9,500 level to trade down $137 from Tuesday at $9,443 per tonne amid option-related delta unwinding - the January date is now around $9,483, meaning that the 1,320 calls at that strike are now out-of-the-money.

Warehouse stocks, meanwhile, rose for the 15th straight session, with the net 1,575-tonne increase lifting the total to 379,250 tonnes, the highest since late-September 2010.

Short-term moves after the option declarations at late-morning may subsequently become jumpy - the recent trend of ever-higher record highs gives way to some erratic movements.

"This [nervousness] could remain over the next few days, as some traders want to retain profits made last year and the market looks very long," LME ring-dealing member (RDM) Triland Metals said.

Lead was $48 lower at $2,561, retreating from Tuesday's seven-week highs of $2,610. Inventories jumped a net 1,350 tonnes to 209,900 tonnes, the highest now since September 28, 1995.

On the wider supply side, Canada's Ivernia said airborne lead levels in shipping containers do not pose a public health risk - it asked to meet with Australian officials to reverse a halt on shipments from its Magellan mine, which continues to operate.

The death of thousands of birds in the port of Esperance from lead poisoning in March 2007 resulted in a two-and-a-half-year halt in exports from the mine, which is seen producing 85,000 tonnes of metal per year, equivalent to two percent of global mine output.

Aluminium, which was again rebuffed near $2,500 on Tuesday, dipped to $2,464, a $21 loss, although inventories fell again - down 1,025 tonnes.

Zinc eased to $2,422, down $48, with a modest 100-tonne stock fall seen. The total stockpile of 701,325 tonnes remains near its highest since late 2004.

Tin shed $300 to trade at $26,000, with stocks rising 110 tonnes to 16,485 tonnes, the highest since early-July 2010. Nickel business at $24,700 was down $455. Steel billet traded at $772.50, up $7.50.

In the minors, cobalt rose $1,000 to trade at $39,000, with stocks falling eight tonnes to 270 tonnes from what was a record high. Molybdenum was indicated at $37,000/38,900.

(Editing by Mark Shaw)