LME MORNING - Base metals led by currencies, volatility expected in week ahead

By: Kathleen Retourne

London 30/07/2012 - Base metals were mostly lower on the LME on Monday morning, tracking currency movements, with only nickel posting gains.

The euro dropped to a session low of 1.2253 against dollar and was last at 1.2267 - the prospect of further action from the European Central Bank (ECB) is providing some support.

"Trade looks set to remain volatile in the week ahead given the thinner holiday market conditions and the heavy line-up of data and central bank policy meetings, which include the Bank of England, the ECB and the Federal Reserve," FastMarkets analyst James Moore said.

ECB President Mario Draghi said on Thursday last week that the central bank would do "whatever it takes" to preserve the euro and French president Francois Hollande and German chancellor Angela Merkel released a joint statement on Friday affirming that their countries are deeply committed to the integrity of the eurozone.

Later this week the ECB will announce its interest rate decision; the market also expects the bank to detail its plans for Spain and Italy, with speculation also mounting that it may resume bond purchases or roll out another LTRO.

"No clear policy indication at this week's ECB meeting could disappoint expectations substantially," Credit Suisse said.

Italy sold almost 5.5 billion euros of debt at an auction of bonds this morning, with 10-year bond yield averaging 5.96 percent - the lowest since April and down from 6.19 percent in June.

First, though, investors will look to the FOMC meeting on Tuesday and Wednesday - there is growing optimism that the Fed will respond to sluggish global growth and the country's high unemployment rate by announcing further monetary easing measures.

Although some participants are hoping the central bank will hint at its intention to pursue a third round of quantitative easing, many analysts believe the bank will not go beyond an extension of its commitment to keep rates exceptionally low until mid-2015.

In data, Spanish flash GDP was as expected at -0.4 percent. The country, the fourth-largest economy in the eurozone, has been under close scrutiny of late as high unemployment and soaring bond yields increased expectations of a full bailout.

Earlier, EU retail PMI for July came in at 46.4, down from the previous month's 48.3. The rest of the day is quiet in terms of data - nothing is due form the US.


Copper has come off its early-morning high of $7,620 - recent business at $7,528 per tonne was down $40 on Friday's close.

"Speculative financial investors displayed a more pessimistic attitude towards copper again in the week to July 24, expanding their net short positions significantly to a 4-week high of 7,600 contracts," Commerzbank said.

"Money managers were thus partly responsible for the good two-percent price slide during this reporting period. Given that the price of copper has risen again in the meantime, however, speculative financial investors must also have been betting increasingly on climbing prices again," it added.

Inventories fell a net 1,225 tonnes, with small arrivals in Leghorn and New Orleans. Cancelled warrants were down 550 tonnes at 49,025 tonnes. Vlissingen was delisted as a port of delivery on July 25, with total stocks at this location 10,150 tonnes and no cancelled warrants.

Aluminium, having briefly broke above $1,900, was $5 lower at $1,890 - inventories dropped a marginal 475 tonnes to 4,840,150 tonnes. Stock increases were reported at Vlissingen and Rotterdam, up 5,125 tonnes and 2,800 tonnes respectively, but this was offset by large drawdowns in Detroit, Busan, Singapore and Baltimore.

Nickel was the weakest performer on Friday but today it has made an improvement of $73 to $15,948. Stocks rose 978 tonnes to 113,676 tonnes, their highest since June 9, 2011, due to increases in Johor and Rotterdam. Cancelled warrants climbed 282 tonnes to 9,894 tonnes, the highest since September 12 last year.

Lead fell $5.50 to $1,919.50 despite a continued drop in stocks - these were down a further 1,075 tonnes at 327,900 tonnes, the lowest since September 16. Cancelled warrants at 45,250 tonnes fell 1,350 tonnes.

Zinc at $1,846 declined $13. Stocks at 1,002,450 tonnes were down fell for the third consecutive day and cancelled warrants were lower at 154,025 tonnes.

Tin at $17,850 was back below $18,000, down $150. Steel remains soft at $380/410, with stocks unchanged at 57,070 tonnes, 6,500 tonnes of which are cancelled warrants.

In the minor metals, cobalt was indicated at $27,000/30,500 and molybdenum was offered at $26,500.

(Editing by Mark Shaw)