LME MORNING - Metals mixed, set for choppy short-term trading

By: Martin Hayes

London 09/01/2012 - Base metals traded at mixed levels during the Monday LME pre-market session, with a euro bounce helping to lift values away from early lows, although the short-term mood and direction remains unclear.

"It is still very early in a new month, quarter and year to discern trends and business has yet to really emerge," a trader said.

Trading this week is expected to be choppy, given the potential for surprises in the eurozone as well as the index rebalancing exercise by the two most followed commodity benchmarks.

These annual portfolio adjustments run from January 9 to January 13, carried out by the Dow Jones-UBS Commodity Index (DJ-UBS CI) and the S&P GSCI Commodity Index (S&P GSCI)

"Support should be seen from the index rebalance and strong oil prices, but quiet physical markets in China, recent poor performance by Shanghai equities and the situation in Europe should cap any gains," broker RBC said.

Traders said the complex is being tugged between the positivity of recent US economic data - 200,000 new jobs were added last month, data published on Friday showed. Pressure, however, stems from a strong dollar and unresolved eurozone sovereign debt issues - later today a meeting between French and German leaders kicks off.

German Chancellor Angela Merkel and French President Nicolas Sarkozy are discussing ways to boost growth in eurozone states struggling to overcome the sovereign debt crisis and reach a deal to increase fiscal coordination.

This morning, the euro slid to a fresh 16-month low against the dollar of 1.2675 at one stage but then recovered to around 1.2775 recently.


ALUMINIUM CANCELLED WARRANTS SOAR

Aluminium was $5 easier at $2,062 but attention was focussed on inventory developments. Headline stocks fell a net 4,525 tonnes to 4,971,075 tonnes but cancelled warrants - metal booked for removal - jumped 95,550 tonnes or 14.8 percent to a new record of 744,925 tonnes.

This reflected 98,550 tonnes being cancelled in Detroit, where cancellations now stand at 219,750 tonnes or 16 percent of the stock in that location. This is likely to bring warrant premium levels in line with Midwest rates, traders said.

The jump lengthens the queue to remove metal considerably ahead of April 1, when load-out rates will double to 3,000 tonnes per day. At the present daily rate of 1,500 tonnes, the queue would have been run down early in the second quarter.

In the nearby spreads, TOM/next (tomorrow/next day) saw business between $1.00 and $1.50 backwardation.

Copper was $3 lower at $7,550 but $105 off its early lows. Inventories fell for the fourth day in a row - down 1,225 tonnes at 366,900 tonnes, the lowest for nearly 13 months. TOM/next was trading at $0.25 backwardation.

In other metals, zinc was up $13 at $1,866, while inventories fell by 875 tonnes to 819,200 tonnes. Lead, after touching a near three-week low of $1,950, moved back to $1,968, a $9 gain, although there was a net inventory increase of 1,100 tonnes.

Nickel traded at $18,743, up a modest $43. Inventories remained static at 89,838 tonnes for the second successive day. Tin was $100 higher at $19,950, with a five-tonne stock drawdown bringing the total to 11,330 tonnes, a fresh low since April 2009.

Steel billet was indicated at $530/545, while in the minors cobalt and molybdenum were quoted at $31,250/31,650 and $29,000/30,750 respectively.


(Editing by Mark Shaw)

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