LME MORNING - Metals revert higher as dollar reels once more

London 05/10/2010 - Base metals rebounded to the upside during LME trading on Tuesday morning after an initial slippage as the dollar's earlier stability proved illusory.

The US currency dived to six-and-a-half-month lows against the euro at 1.3794 - it had been around 1.3700 at one stage.

This arrested the downward drift that had been emerging in the metals, although the upturns were not dramatic and prices largely remained some way below the highs of the current upswing.

The market's short-term mood has turned slightly cautious so far this week in the wake of last week’s emphatic price gains and current trends are likely to be influenced by wider markets while the complex consolidates.

"The metals are in consolidation mode and, with the stochastics falling quite markedly, we would not be surprised to see prices pull back further," William Adams of FastMarkets said. “But the overall uptrends are strong - unless something emerges to knock sentiment, we would expect dips to be bought.”

Short-term movements are also seen hinging on October traded options declarations tomorrow. The pace of trade will be erratic at times, with Chinese markets, including the Shanghai Futures Exchange, closed until Friday for National Day holidays.

"We expect industrial metals to take direction from equity markets and broader risk sentiment ahead of Friday’s release of US non-farm payrolls," broker Credit Suisse said.

Wider financial markets were mulling over the surprise interest rate move by the Bank of Japan - it cut interest rates and said it would set up a fund to buy JGBs, corporate bonds, exchange-traded funds and real estate investment trusts.

The Bank of Japan's nine-member policy board vote decided to set its overnight call rate target to a range of zero to 0.1 per cent.
Central banks - not only in Japan but in the US and elsewhere - are under political pressure to do more to support economies showing only tepid recovery from the worst recession in decades.

Expectations that the US Federal Reserve will embark on another round of quantitative easing has helped send the dollar to five-and-a-half-month month lows recently, underpinning base metals.


Copper, which initially subsided near to $8,000, bounced back to trade at $8,087 per tonne, up $23 now from the Monday close but having settled back from Friday's two-and-a-quarter-year highs of $8,178. Inventories resumed their usual downtrend, meanwhile, falling 350 tonnes to 374,100 tonnes.

Tin touched $25,450, a fresh high since July 2008 and just $100 below the all-time peak set in that same month, with fundamental and technical tightness maintaining strength - there was a minimal five-tonne stock rise today. Recent trade was at $25,375, up $175.

Aluminium business at $2,350 was still down $13, with the market's price range distorted on the downside by an error trade made earlier in Asian trading hours. Stocks recorded their customary decline, falling a net 4,350 tonnes to 4,344,500 tonnes.

Elsewhere, zinc traded at $2,232, up $2, with a 725-tonne fall seen in stocks. Lead cut losses to stand just $2 lower at $2,275 after a small 75-tonne inventory fall.

Nickel traded at $24,065, still down from a previous $24,140, but above lows as well, with stocks declining a net 270 tonnes - the market hit a five-month high of $21,145 on Monday. Steel billet traded at $440, up from a previous trade of $438 - stocks fell 325 tonnes.

In the minor metals, cobalt was quoted at $38,500/40,000 per tonne against a previous $36,900/40,000 and stocks fell 12 tonnes to 162 tonnes. Molybdenum was unchanged at $30,500/39,500.

(Editing by Mark Shaw)