LME MORNING - Metals weaken on risk aversion, copper sets two-month lows

By: Martin Hayes

London 05/11/2012 - Base metals fell across the range during Monday LME premarket trading, undermined by a weak euro and a widespread diminishing in risk appetite ahead of this week's major political and monetary events, traders said.

Copper dropped to a two-month low amid active liquidation, with the euro likewise falling to its lowest since early September at 1.2774 against the dollar.

"At the moment, it is a case of one step forward and then two or more steps back in the market," a trader said.

Technical selling was seen as well, with little evidence that there has been any significant influx of fresh portfolio investment money this month other than a brief flurry last week.

"Considering the better-than-expected economic data, this sell-off seems quite odd. We think the conviction level amid market participants is currently low, due to this week’s event risks," broker Credit Suisse said.

Last Friday's keynote data event - the October US non-farm payrolls reports - exceeded expectations but only had a fleeting impact on prices and sentiment. Short-term caution, instead, is prevailing, given Tuesday's US presidential election and the once-in-a-decade Chinese power transfer later this week.

As well, there are macroeconomic monetary policy meetings from the European Central Bank and the Bank of England on Thursday.

Today, the main external factors could be developments from the G20 meeting in Mexico and, although the data calendar is light, the US non-manufacturing PMI that will be released later. In European figures issued so far, Spanish unemployment rose a higher-than-expected 128,200 last month.

For the metals, meanwhile, there is the usual Wednesday November traded option declarations and fund spread activity to come, traders noted.

"[The] week brings the start of the monthly index rolls and we’d expect the Dec/Jan spreads to ease a fair bit as that will be the period getting lent," broker RBC said.


COPPER TESTS $7,600/T

Copper fell as low as $7,600 per tonne, its cheapest since September 5, and then traded hesitantly at $7,613, a $52 loss from the soft Friday close. Warehouse stocks fell a net 1,650 tonnes to 241,325 tonnes.

Aluminium was again threatening to fall back below $1,900, trading recently at $1,913, down $12. Inventories declined 5,675 tonnes to 5,079,375 tonnes, with regular outflows from Detroit, Vlissingen and New Orleans.

Zinc dropped to $1,845, down $29 - inventories fell 725 tonnes to a bulky 1,169,300 tonnes. Lead business at $2,071 was $24 lower, while there was a 1,650-tonne drop in stocks to 319,050 tonnes.

Nickel traded at $15,879, down $91, with a 54-tonne drop in stocks to 130,128 tonnes. Tin was $110 lower at $20,050, with inventories climbing 50 tonnes to 12,035 tonnes.

Steel billet was quoted $5 higher at $350/360, with inventories down 1,560 tonnes at 101,725 tonnes.

In the minors, cobalt inventories rose five tonnes to 403 tonnes, the highest level since the contract was rolled out in February 2010. Prices were indicated at $25,000/27,500, around contract lows, with the physical market at its softest since late 2008. Molybdenum was neglected.


(Editing by Mark Shaw)

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