LME MORNING - Base metals spike on large ECB fund take-up but effect short-lived

By: Kathleen Retourne

London 21/12/2011 - Base metals gained on Wednesday morning when the European Central Bank (ECB) launched its first ever three-year loans to banks to boost liquidity.

But metal prices have since dropped back after an initial spike although they remain largely in positive territory.

A better-than-expected take-up of 489.2 billion euros in loans boosted market confidence - the previous record was 442 billion euros at an auction of one-year funds in June 2009.

Equities jumped and the euro strengthened to 1.3198 against the dollar but the optimism proved to be short-lived, with the single currency dropping back to 1.3081.

Although positive, the loans are still a temporary measure and on their own will not resolve the debt crisis.  

“If there is a silver lining for the bulls in all this, it is the extraordinary degree of pessimism surrounding the euro and the prospects for stabilising the European debt crisis,” Ed Meir of INTL FCStone said.

“Should the politicians indeed pull multiple rabbits out of their hats, the markets could be in for a sizable relief rally, but a lot more time needs to pass without further convulsions before investors begin to come around to such a possibility," he added.

Attention will now turn to the US existing home sales data, as investors look for any clue on the strength of the recovery in the world's biggest economy.


Aluminium was resistant to this morning's newsflow, remaining steady at $2,005 per tonne.

“We believe the aluminium price to be well supported nonetheless in coming months and anticipate rising prices,” Commerzbank said.

Stocks inched closer to 5 million tonnes, increasing a net 30,925 tonnes to 4,953,725 tonnes - a fresh all-time high - again due to warrantings in Johor at 16,700 tonnes and Detroit at 9,000 tonnes. Cancelled warrants were also up, however, rising 142,825 tonnes to 280,775 tonnes.

Copper was up $25 on yesterday’s close at $7,475 but down almost $100 on its intraday peak of $7,573 that it hit on the news of the large ECB take-up.

Warehouse stocks halted 14 consecutive days of downturns, rising 450 tonnes to 371,300 tonnes, but still near a one-year low. Cancelled warrants jumped 7,375 tonnes to 39,625 tonnes.

On the supply side, workers at Freeport-McMoRan Copper and Gold’s Grasberg copper mine in Indonesia’s Papua province delayed plans to return to work until next week due to technical issues after a three-month strike, according to reports.

Zinc stocks also rose, increasing 2,225 tonnes to 811,550 tonnes, while cancelled warrants slipped back, dropping 925 tonnes to 18,500 tonnes. But prices were last up $13 to $1,881.

Nickel inventories were down 372 tonnes to 88,338 tonnes, a one month low. Prices had earlier risen above $19,000 but have since settled at $18,890, still an increase of $335 on yesterday.

“Nickel has been trading above its 30-day moving average and will likely continue to attract short covering interest from technical players until this import support level is again broken to the down side,” RBC said.

Lead prices at $1,981 increased $21, while stocks fell 2,625 tonnes to 358,450 tonnes. Tin inventories dropped 230 tonnes to 11,970, while cancelled warrants dipped to 545 tonnes, a loss of 190 tonnes. At $19,300, prices were up $500.

(Additional reporting by Clara Denina, editing by Mark Shaw)