LME MORNING - Base metals hold onto gains but caution remains

By: Kathleen Retourne

London 25/09/2012 - Base metals held overnight gains in Tuesday morning premarket trading, supported by reports of stockpiling by a Chinese provincial government .

But persistent concerns about sluggish metals demand from the world's top consumer as well as the usual eurozone anxieties capped gains.

“News reports overnight paint a weak picture for Chinese base metals demand,” ANZ Research said. "Yunnan province said it will stockpile 300,000 tonnes of metal, including 200,000 tonnes of aluminium, 50,000 tonnes of zinc and 20,000 tonnes of copper to support local smelters. Prices for all three metals are stable this morning, but we see some downside risks."

The euro is hovering around 1.29 against the dollar while persistent concerns over the eurozone weigh. During Asian trading hours, the single currency fell to a one-week low of 1.2883.

“Copper is slightly up on the day - I'm not sure why because we have a run of fairly poor economic data, the IFO yesterday out of Germany, the euro weaker as well, the Germans looking to challenge the legality of the ECB bond buying plan - and so on,” Société Générale analyst Robin Bhar said.

Spain remains the market focus after the country’s bond yields inched higher yesterday. Although it has yet to request a formal international bailout, many market participants believe it is only a matter of time before it must do so.

In data, September GfK German Consumer Climate index came in at 5.9 against the forecasted 6.0, lower than expected but unchanged from August's level.

“[There is] quite a bit of negative news out of the eurozone, which has weakened the euro - I'm surprised metals are holding up as they are able to as they are able to now. I suspect that when the US markets could see more selling coming through,” Bhar added. "I would be a bit cautious in seeing these early rallies being sustained for the rest of the day."

Data releases scheduled for Tuesday include the September US CB consumer confidence index and the Richmond manufacturing Index, and the July US S&P/CS composite-20 HPI and FHFA HPI.


MARKETS HIGHER

Copper is up $36.50 on the previous day’s close at $8,219.50 but down from its earlier session high of $8,263. Inventories were up 350 tonnes to 220,300 tonnes, while cancelled warrants at 40,425 tonnes were 1,425 tonnes higher.

“Prices are up from a one-week low but gains are forecast to be limited on uncertainty about bailout prospects for Greece and Spain,” Fairfax' John Meyer said.

Lead at $2,279.25 per tonne was up $12.25 on the previous day’s close. Inventories were down for the 13th consecutive session, dropping 3,650 tonnes to 277,600 tonnes - the lowest since April 12, 2011.

The drawdowns are mainly from Singapore, where stocks have fallen 23,350 tonnes or 48 percent since the start of August to stand at just 24,725 tonnes. Cancelled warrants, meanwhile, were down 3,650 tonnes at 92,600 tonnes.

Aluminium at $2,092.50 was up $12.50, while tightness in the 'TOM/Next' (tomorrow/next day) spread dissolved - it is now at a slight contango of $0.39. Stocks were little changed, falling a mere 225 tonnes to 5,080,725 tonnes. Cancelled warrants were also lower, declining 11,075 tonnes to 1,618,925.

Zinc gained $12 to $2,115. Cancelled warrants started to creep higher once again, rising 4,175 tonnes to 363,825 tonnes - a fresh all-time high. Johor was responsible for the increase, up 5,475 tonnes at 38,100 tonnes. Total warehouse stocks at 976,125 tonnes were 1,300 tonnes lower due to declines in New Orleans.

Nickel was holding above $18,000, up $261 at $18,236, while stocks and cancelled warrants both fell 24 tonnes to 122,442 tonnes and 16,944 tonnes respectively.

Tin broke smartly above $21,000 - it was last $510 higher at $21,160 despite an 80-tonne increase in stocks to 12,055 tonnes and a 25-tonne decrease in cancelled warrants to 16,944 tonnes.

Steel was quoted at $355/370, while inventories were down 130 tonnes to 49,985 tonnes. In the minor metals, cobalt was last at $30,000, while stocks and cancelled warrants both fell one tonne to 381 tonnes and 43 tonnes respectively. Molybdenum was unquoted and stocks were unchanged.


(Editing by Mark Shaw)

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