LME MORNING - Metals renew upside momentum as dollar drops on bright euro data

London, 22 July 2010 - Metals renewed their upside chart-based momentum after a string of improving European economic figures boosted the euro and calmed jitters that emerged overnight after US Federal Reserve chairman Ben Bernanke warned of economic uncertainty.

Copper cracked through $6,900 for the first time since late May and targeted the $7,000 mark, while lead vaulted $1,900. Nickel hit its best since June while zinc and tin hovered close to Wednesday's multi-month highs.

Business has been chart-based and technical in nature, traders said, as shorts rush to cover positions and momentum-based players join the fray. The catalyst was a stronger euro as well as reports this week that favoured copper’s fundamental outlook.

The metals appear to be attempting a breakout and volumes are backing the trend, with almost 9,000 copper lots having changed hand on Select.

But typically for the summer, sentiment is fickle and end-user business is still drained by holidays so the complex could still quickly - and savagely - change trend.

The euro gained ground against the dollar after a string of improving economic figures this morning that provided some solace for investors, following Bernanke's speech overnight where he warned of economic uncertainty, which overshadowed stocks this morning.

The euro moved up to 1.2820 against the dollar from near one-week lows at 1.2730. German manufacturing PMI came in at a much stronger 61.2 points than the 58 points expected while services also outperformed. In Europe, the same indicators also beat expectations.

In Europe, stocks added to gains, with German and French major indices up more than one percent.

Attention has now turned to tomorrow's European bank stress test results, designed to reassure markets that these can withstand protracted periods of slow growth and choppy lending conditions.

Markets have positioned for a relatively positive outcome, with talk that German and French banks will pass muster. But sentiment is so volatile that any negative surprises could trigger a vicious downward swing - catching out metals markets in the process.

"If the ECB publishes the names of failing banks tomorrow then the market may risk further collapse unless solutions to failing banks accompany the statement. Some banks are forecasting that EU bank failures will be published," Fairfax said.

Aside from weekly jobless figures, corporate earnings reports are due from United Parcel Service, Microsoft and Caterpillar - seen as measures of how the overall economy is faring.

On the fundamental side, copper has found support his week from reports - from the International Copper Study Group and World Bureau of Metals Statistics - that underlined healthy demand for the red metal so far this year and comments from producers Freeport-McMoRan and BHP Billiton that also burnished its fundamental outlook.

"Freeport delivered a better than expected second-quarter result and said that its order book was stronger than they had seen in a long time - hinting the softer macro indicators were not a good guide for the current buoyant state on the metal market," Australia’s ANZ noted.

And BHP Billiton said that its copper production this financial year could fall between five and 10 percent due in part to declining ore grades.

Meanwhile, stocks continue to decline. The seasonally counter trend is expected to continue this summer, with premiums for physical material rising.


Copper sped $110 higher to $6,960 per tonne, its best since May 28, amid robust volume trade with more than 7,000 lots on Select. A break though the 200-day moving average at $6,982 and then $7,000 looks assured.

"$7,050 next stop - it's all technical," a trader said.

"The market got itself short yesterday on the premise that the data out yesterday was going to be negative, therefore everyone set themselves up that way and then all tried to buy it back at the same time, exacerbating the upward move," another said.

Copper stocks dropped 1,100 tonnes, the 25th consecutive session of declines, underpinning an improving fundamental outlook and suggesting that summer's seasonal stock build may not be seen this year.

Zinc inventories reversed direction, having fallen sporadically over the past two months. They jumped by 1,950 tonnes to their highest since June 17, 2005. The move was ignored by prices - zinc was last $24 higher at $1,939.50 a new best since May 28 at $1,939 the prior session.

Lead raced to $1,913, hitting $1,894, a new best since May 17 and up $48 or 2.6 percent. Stocks fell a net 425 tonnes today.

Aluminium soared in copper's slipstream, reaching $2,039.50 for the first time since mid-June, up $31.50 on the day. Here, stockpiles declined after climbing during this ‘third Wednesday’ week - down 6,100 tonnes.

Three-month tin at $18,400 had not yet matched the prior session's best - it had hit $18,449 - but it looked set to do so imminently. Stocks fell a net 150 tonnes to a new low since June 8, 2009.

Med billet joined the party, hitting a new high since at $460 since May 14. Volumes hit record highs this week as the metal garners greater traction ahead of the merger with its Far East counterpart on July 28.

Molybdenum was neglected but offered at $33,000 per tonne, against $27,500/33,000 on Wednesday. Five lots of cobalt changed hands at $38,000 per tonne, up $1,100 from yesterday when one lot traded on Select. Two lots were withdrawn from LME-bonded warehouses today.

(Editing by Mark Shaw)