LME MORNING - Base metals in recovery mode, copper at 10-day high but caution remains

By: Kathleen Retourne

London 09/04/2013 - Base metals were moderately higher in Tuesday morning LME trading after a positive Asian session, with a stronger euro provided some lift.

Despite lingering concerns about stability in the eurozone, the single currency has continued its modest recovery after last week’s disappointing US jobs figures and was last at 1.3049 against the dollar.

“Prices are benefitting from a fillip in the euro although generally these initial rallies are being viewed as selling opportunities,” a trader said. “Eurozone woes are still hovering in the background, and always have the potential to chop down any bullish move.”

"These are fledgling rallies though and could therefore stall at any time,” FastMarkets analyst William Adams added. “But generally we feel they may have legs - the metals had started to look oversold in recent weeks and we are now in the seasonally strong second quarter.”

The problems in the stuttering eurozone economy has yet to be resolved - in the latest developments, German imports and exports unexpectedly fell in February while Slovenia’s banks could face a severe banking crisis, according to the OECD.

The Eurogroup meeting in Dublin this week will be watched for any signs of progress.

“The eurozone crisis never went away. Markets simply ignored its economic faultlines under the covering fire of [ECB president Mario Draghi,” Credit Suisse said in a note. “The Cypriot ‘rescue’ deal did much to remind us of how Brussels works. Italy is still trying to form a new government, in France the government is increasingly unpopular and now in Portugal the austerity program[me] of the current government has been thrown into question by the constitutional court.”

In the base metals, today is the second day of the index roll period, where May/June lending interest will be around the closes for the week.

“May/June aluminium and nickel are pretty close to full finance so we doubt those spreads will move much further, but the rest of the metals are showing tighter than full finance at the moment and certainly have scope to move more,” RBC said.

In earlier Chinese data, the CPI eased, which is a bullish development in that it should reduce pressure on the government to tighten monetary policy.

China's CPI for March was 2.1 percent, below the forecast of 2.5 percent and a drop from 3.2 percent in February, while the country's PPI came in near expectations at 1.9 percent.

French trade balance disappointed at -6.0 billion euros against the forecast -5.3 billion euros. The US NFIB small business index and wholesale inventories are due later today.


Copper at $7,524 per tonne was up $74 on the previous day’s close - a 24-hour strike is taking place at all Codelco divisions in Chile, which is also providing support to prices.

Copper inventories restarted their upward march. After a brief dip yesterday, stocks rose a net 8,150 tonnes today to 587,550 tonnes due to a 4,075-tonne arrival in New Orleans, a 3,075-tonne increase in Johor and a 1,950-tonne rise in Antwerp. Cancelled warrants were also higher still, up 4,475 tonnes at 151,800 tonnes.

Aluminium gained $4 to $1,894. In the forward spreads, June/July is now in a contango of $4 - this spread has been closely watched after periods of tightness. Further tightening is likely because the speculative shorts are larger than the index longs and there will still be some games to aggravate the spread as it comes to prompt, RBC said.

Inventories at 5,203,150 tonnes were down 9,825 tonnes and cancelled warrants fell 11,875 tonnes to 1,971,800 tonnes.

Aluminium producer Alcoa yesterday predicted a seven-percent increase in global demand for the metal in 2013, a figure that Commerzbank believes is overly optimistic.

“Production rates around the world [remain] high and… there has been virtually no evidence so far of any production cuts,” it said. “Furthermore, the high inventory levels should be able to cushion any reduction in production rates even if stocks are not fully available to the market on account of financial transactions.”

Lead at $2,075 was $17 higher. Stocks were little changed, down 150 tonnes at 260,400 tonnes, and cancelled warrants slipped 25 tonnes to 135,725 tonnes. Zinc at $1,910 was up $18, with stocks and cancelled warrants both down 7,125 tonnes at 1,141,825 tonnes and 677,875 tonnes respectively.

Nickel at $16,201 was up $151 after stocks fell 78 tonnes to 166,788 tonnes. Tin was the only metal in negative territory, edging $40 to $22,885 after stocks rose 35 tonnes to 14,450 tonnes.

Steel was indicated at $180/300, with a 195-tonne rise in cancelled warrants to 44,460 tonnes at Antwerp.

In the minor metals, cobalt was quoted at $25,000/25,750, with no change in stocks, while molybdenum was offered at $26,500 - cancelled warrants rose 12 tonnes from the previous zero tonnes.   

(Editing by Mark Shaw)