LME MORNING - Prices tick up but market slows towards year-end

By: Kathleen Retourne

London 20/12/2011 - Base metals made slight gains on Tuesday morning but conditions were slow and volumes remained weak, with around 18,000 lots changing hands across the complex so far.

Activity has slowed and ranges as narrowed, with the market looking to have settled down for the imminent end of the year, FastMarkets analyst William Adams said. Further consolidation with a slight downside bias is likely in the absence of any major development.

"As we head into the year-end holiday season, trading conditions both this week and next should thin out considerably, leading to rather exaggerated movements in many of the commodities we follow," ED Meir of INTL FCStone said.

"Most funds will be cleaning up positions ahead of uninspiring quarterly and year-end performances, and although they will start 2012 with a clean slate, they will not have any better visibility when it comes to navigating their way through a thicket of formidable global macro and political uncertainties that 2012 will have in store for the markets," he added.

The euro was up on the dollar at 1.3080, which added support to commodity prices. But International Monetary Fund (IMF) chief Christine Lagarde warned today that the world economy is “at a dangerous juncture”, capping any market gains.

On Monday eurozone finance ministers confirmed plans to contribute €150 billion ($195.6 billion) in additional bilateral loans to the IMF, although confusion has arisen regarding contributions from other EU members after the UK reiterated that any additional IMF funds should be part of a global agreement.  

Copper, which had been struggling to find any upward momentum, received support from another drawdown in LME warehouse inventories - these fell a further net 3,100 tonnes to 370,850 tonnes due to stocks leaving Gwangyang and Singapore.

Prices increased slightly shortly after the data was released, hitting an intraday high of $7,345 per tonne.

Aluminium, on the other hand, saw large warranting in both Detroit of 27,775 tonnes and Johor of 22,900 tonnes, pushing stocks up by 49,775 tonnes to 4,922,800 tonnes, a fresh all-time high.

Traders believe the metal could hit 5 million tonnes by the end of the year - it is currently just 77,200 tonnes short of this target. At $1,993 it has yet to reach the pivotal $2,000 level although it was up $31 on yesterday’s close. Dec/Jan is still showing a backwardation of $2.25.

“With something like 20 percent of the world's aluminium producers now operating at a loss, premiums in China favouring imports of the light metal, open interest setting records and the price hitting new lows each day, we would think it only a matter of time before something happens which will cause a severe price spike,” RBC said.

High open interest was behind large warrantings in zinc. A backwardation for Dec/Jan remains in place at $12.00, while three-month metal on select was last at $1,861, an increase of $23.

Inventories rose a substantial 43,700 tonnes, of which 27,025 tonnes was in New Orleans and 15,300 tonnes in Johor, taking total stocks to 809,325 tonnes, the largest since October 6.

Tin at $18,800 was up $105. Stocks were unchanged at 12,200 tonnes - they had dropped to 11,580 tonnes earlier this month, the lowest since April 2009, due in part to an export ban in Indonesia. But stocks are set to increase now that shipments have resumed.

“The price of tin is unable to recover and remains under pressure," Commerzbank said. Although the self-imposed export ban by Indonesian tin producers has not yet been officially lifted, it has de facto collapsed once and for all, having already been undermined in recent weeks by a number of companies.

“There is now a risk of more smelters bringing tin to the market which they had previously withheld, thereby further pressurising the price,” it added.

Lead inventories fell 1,575 tonnes to 361,075 tonnes and cancelled warrants dropped 1,975 tonnes to 37,100, with business at $1,957 an increase of $20. Nickel prices were also up, rising $320 to $18,700, while stocks dropped back 252 tonnes to 88,086 tonnes.

Meanwhile, earlier today the LME reported record volumes in cobalt on Monday, with 326 lots traded - the equivalent of $10 million. Market open interest is also at a record level for this year at 271 lots. Prices were unchanged from yesterday at $30,000/31,000.

(Additional reporting Clara Denina and Perrine Faye, editing by Mark Shaw)