LME MORNING - Metals mixed, cautious as early enthusiasm dented by steadier dollar

London 06/01/2011 - Base metals traded either side of unchanged levels during Thursday LME morning trading, easing back from initial steadier levels, against the background of a strong dollar and another patchy inventory report.

The dollar was holding around 1.3100 against the euro, having briefly touched a peak of 1.3092.

"With the metals already at high levels across the board, which suggests they have already discounted a better economic environment, we would we wary in case there is insufficient follow-through buying to see upward momentum maintained, especially if the dollar remains bid," William Adams of FastMarkets said.

Copper pulled back after earlier showing signs of moving towards a retest of the fresh all-time peak of $9,754 per tonne set earlier this week, the supply-sensitive lead market drifted back from the previous afternoon's one-year highs and zinc was undermined by a negative inventory report.

After consistent advances last week, business and price movements may well be bumpy in the next few sessions.

"Although much of the market is friendly to upside gains, there is too much uncertainty with the influence of cross commodity re-weightings," LME RDM Sucden said.

The annual index rebalancing starts this week and carries through to next week, when commodity index funds reweight, adding risk in under-exposed markets while paring back holdings in overweight assets.

This is likely to add to short-term turbulence in the base metals, where this week's manufacturing and employment figures have injected positivity and set the scene for tomorrow's keynote US employment report for December.

Data on Wednesday showed planned US job cuts were much lower than forecast, while private employers added 297,000 jobs last month. The latter - the ADP report - adds to growing evidence that the world's largest economy is on the path to recovery.

The much-anticipated US government report tomorrow is expected to show that non-farm payrolls rose by some 175,000 in December. Prior to that, the usual weekly jobless claims will be issued later today - these are seen at 400,000.


Copper, which had been forging higher above $9,650 per tonne, dropped to $9,588, still up $40 from the Wednesday close.

Inventories rose for the 16th session in a row, with the net 150-tonne increase lifting the stockpile to 379,400 tonnes, a fresh high since late-September 2010. But cancelled warrants - the metal booked for removal - rose 13 percent to 28,187 tonnes.

Lead, which touched 12-month highs of $2,675.50 in a frenetic afternoon yesterday, dipped to $2,648, down $12.

Although warehouse inventories stand at 15-year highs, the metal’s strength reflects Canada's Ivernia suspending operations at its troubled Magellan mine in Australia and declaring force majeure on shipments as concerns mount that airborne lead levels in containers pose a public health risk.

Zinc fell back to $2,451, down $12, having been as low as $2,443 after the latest inventory data. Although the headline figure showed a 200-tonne fall to 701,125 tonnes, the total remains close to six-year highs.

More significantly, there was a massive 94 percent fall in cancelled warrants to 1,700 tonnes from 26,625 tonnes. This was due to cancellations in New Orleans being rescinded - to just 275 tonnes from 25,275 tonnes.

Elsewhere, aluminium drifted back to $2,458, down $5, after a rare stock increase - inventories were up 925 tonnes to 4,274,875 tonnes.

Nickel traded at $24,851, up $151 but off its highs. Stocks rose a net 180 tonnes to 137,040 tonnes, the highest since May 2010. Tin traded at $26,425, a $200 gain. But there was another 70-tonne stock increase, which lifted the total to a fresh six-month peak of 16,555 tonnes.

Steel billet was indicated at $570/580, up $2, cobalt was quoted at $38,000/41,000, down $1,000, and molybdenum was steady at $37,000/37,700.

(Editing by Mark Shaw)