LME MORNING - Base metals set new highs as ESM overcomes German constitutional hurdle

By: Eddie van der Walt

London 12/09/2012 - Base metals set new multi-month highs as the German Federal Constitutional Court in Karlsruhe approved the legality of the European Stability Mechanism (ESM) - but attached conditions on its use.

The German court rejected appeals that the terms of the ESM breached German constitutionality, thus clearing the way for the 500 billion euro backstop to be ratified.

In its ruling, the court stipulated that only about 190 billion euros can be backed by German liabilities before the ESM is ratified, unless this is specifically agreed by parliament.

"The motion for a temporary injunction are rejected," Chief Justice Andreas Vosskuhle said in his judgement, adding that it was "highly probable" that the laws that were challenged are not in breach of the constitution.

"As expected, Germany’s Federal Constitutional Court has given the green light for the European ESM bailout fund – albeit with a number of conditions," Commerzbank said in a note. "These [conditions] are unlikely to noticeably sour the mood of market players."

However, the stability of the single currency will face a further test today, as Dutch voters go to the polls. In April this year, the Dutch government collapsed following a row over EU imposed budget reductions.

At the time, many expected anti-EU sentiment to gain traction in this election, but since then, polls have shown that more moderate, pro-European parties are in the lead. The election is likely to be a race between the incumbent prime minister Mark Rutte's Liberal VVD party and the centre-left PvdA Labour Party, led by Diederik Samson.

Meanwhile, in China, the outgoing premier Wen Jiabao said that his country still had plenty of ammunition to fight the growing slowdown in the country.

Speaking at the World Economic Forum in Tianjin, he said that he expects China to hit its 7.5 percent growth target, but added that Beijing could use a 100 billion yuan ($16 billion) fiscal stabilization fund if needed.

The market is also waiting for news on whether the US Federal Reserve will intervene with a third round of quantitative easing when it releases a statement on Thursday.

The euro has continued its new-found strength against the dollar, setting a fresh four month high at $1.2931 earlier after the German court ruling. It was last at $1.2921, up 0.0066. The dollar index, meanwhile, dipped by 0.27 to 79.59.


Copper set a new four-month high at $8,170. It was last at $8,256.50 per tonne, up $66.50 on the close. Stocks increased by 1,175 to 215,775, with inflows of 1,000 tonnes in Busan and 700 in Incheon Port, South Korea balancing out dips elsewhere. Cancelled warrants increased by 1,525 to 39,450.

Aluminium also set a four-month high at $2,099, it was last at $2,093.50 per tonne, up $13.50 on the close. Reserve material declined by 8,500 to 4,854,325 tonnes. Both Vlissingen and Detroit saw an outflow of 3,000 tonnes, while Rotterdam received the same amount. Cancelled warrants fell by 11,300 to 1,600,750.

Zinc, the third base metal to set a four-month high at $2,043.75, was last at $2,036.25 per tonne, up $19.25.  Stocks of zinc continued to dwindle, falling for the 19th consecutive day. Stockpiles dipped by 3,050 to 930,050 tonnes, with both New Orleans and Port Klang, Malaysia seeing about 1,500 tonnes leave warehouses. Cancelled warrants were down by 3,050 to 128,050.

Nickel was last at $16,945 per tonne, up $120 on the close. Stocks increased by just six tonnes to 120,816, while cancelled warrants decreased by 354 to 13,980. Lead was at $2,150.75, up $22.25. A net 2,250 tonnes of material left warehouses, with 1,500 tonnes leaving Singapore. Cancelled warrants were also down 2,250 to 107,800. Tin stocks were unchanged at 11,665 tonnes, with 815 fewer cancelled warrants, taking the total to 7,095 tonnes. It was last at $21,005 per tonne, up $325 on the close.

Two contracts of steel billet were traded, with the last at $350. Minor metals cobalt and molybdenum were neglected.

(Editing by Yoke Wong)