LME MORNING - Metals firmer on relief rally, consolidate below highs

By: Martin Hayes

London 16/12/2011 - Base metals rose during LME premarket trading on Friday, staging an end-week relief rally that that reflected similar trends in other markets, as well as technical buying after a week of losses.

"There has been a lot of short-selling by the CTAs - we did see some shortcovering yesterday and that has continued this morning - the [steadier] euro has helped," a trader said.

A run of positive economic reports from Europe and the US on Thursday injected some fundamental stimulus to sentiment, underpinning equity markets, both yesterday and this morning. European shares were round 0.3 percent higher recently.

The euro was steadier, with mid-week vulnerability temporarily abating. The currency rose to around 1.3030 against the dollar, holding above sub-1.30 levels and the mid-week 11-month low of 1.2943.

But the upmoves towards the end of what has been a week of deteriorating sentiment and swathes of liquidation and fresh selling may just be temporary technical covering rallies.

Despite the recent run of improved economic figures, global economies are still struggling to move back to sustained growth, while eurozone sovereign debt woes and the threat of contagion have yet to be tackled. This was highlighted today when Fitch Ratings downgraded eight of the world’s largest banks.

For the metals, business flows and price movements will turn increasingly volatile and choppy into the last full trading week of the year, amid December pricing considerations and pockets of tightness in aluminium, nickel and zinc.

"Overall, it is doom and gloom and the trend is still downwards - the funds are looking to come in and sell if it moves much higher," the trader said.


Copper recently traded at $7,315 per tonne, up $104 or 1.4 percent from the Thursday close and having been as high as $7,359.75. Despite the bounce, prices are more than six percent lower this week, with technicals suggesting further losses.

But warehouse inventories continue to decline, falling for the 12th day in a row - down a net 825 tonnes to a fresh 11-month low of 381,250 tonnes.

Aluminium business at $1,997 was up $22, with the market managing to hold above the Wednesday 17-month low of $1,955.75. Warehouse stocks dropped 2,750 tonnes to 4,822,275 tonnes.

But next week may see some further heavy tonnages warranted against the 'third Wednesday' December cash date. Stocks have fallen for two days but prior to Thursday more than 280,000 tonnes was warranted, lifting the total to an all-time high of 4.826 million tonnes.

Zinc traded at $1,872, up $27.50 but off the highs, with stocks rising 1,000 tonnes to 758,900 tonnes. This metal, too, is expected to see some substantial warrantings in the coming sessions, given the current December tightness - Dec/Jan traded at $13.00 backwardation.

Nickel traded at $17,990, up $95, after inventories dropped 834 tonnes to 88,710 tonnes, while cancelled warrants slipped 804 tonnes to 4,956 tonnes.

Lead advanced $27.50 to $2,002.50, with stocks falling 1,575 tonnes to 358,075 tonnes, the lowest since September 20. Tin stocks rose 85 tonnes to 12,200 tonnes, with recent business $150 higher at $18,750.

Cobalt saw a 20-tonne decline in stocks, all out of Singapore, taking total stocks to 300 tonnes. At $28,000/31,500, prices were unchanged from yesterday's close. Steel lost $3 to 547/562 and molybdenum was bid but not offered at $28,000.

(Editing by Mark Shaw)