LME MORNING - Base metals take breather after yesterday’s relief-rally, copper back under $6,800/t

By: Kathleen Retourne

London 09/07/2013 - Base metals drifted lower in Tuesday LME premarket trading, paring back some of the previous day’s gains. A strong dollar, coupled by concerns over Chinese growth, has capped prices, while many investors will prefer to wait on the sidelines ahead of tomorrow’s Chinese import data.

“Any marked short-term price increase is likely to be blocked by the continuing high pessimism shown by speculative financial investors,” said broker Commerzbank. “Although they cut their net short positions somewhat in the week to 2 July, they still remain very negative towards copper, with 27,000 contracts.”

The higher-than-expected June China CPI also weighed on sentiment, as it further dimmed the likelihood that Beijing would launch stimulus measures to spur economic growth as it also struggles to rein in property values. The inflation reading from last month came in at 2.7 percent, above the forecast of 2.5 percent and a jump from 2.1 percent in May.

“With the effects of higher credit growth now being seen in the inflation data the PBoC now has a serious quagmire to deal with,” said FastMarket analyst Jono Remmington-Hobbs. “Does it let inflation continue to move back towards its target benchmark of 3.5 percent and therefore chose not to tighten the flow of credit and rein in earlier successes? Or does it look to rein in credit growth and therefore remove support from the slowing economy?”

“At the beginning of the year the PBoC said that controlling inflation was its main priority- we wonder if that is still the case today,” Hobbs added.

Although the US dollar index softened yesterday after climbing to a three-year high, the base metals complex remained under pressure from a strong greenback, amid renewed concerns about the eurozone and stronger expectations of Fed quantitative easing tapering. The euro was last at 1.2875 against the dollar.

COPPER BACK UNDER $6,800/T

Copper dropped back under $6,800 per tonne, last at a session low of $6,757 down $73 on the previous day's close. Warehouse stocks were down a net 6,475 tonnes to 650,125 tonnes and cancelled warrants at 347,350 tonnes were down 7,250 tonnes.

Tightness in the spreads has dissolved, with only August-3 months and September-3 months showing backwardations, and these are minimal at $1.00 and $1.25 respectively.

Aluminium at $1,787 fell $16 after inventories rose 13,700 tonnes to 5,433,575 tonnes. Vlissingen was responsible for the hike in stocks, inventories here rose 17,800 tonnes to 2,018,575 tonnes. Vlissingen is the largest holder of aluminium and the latest increases means that it has over 576,000 tonnes more inventory that its competitor Detroit. Cancelled warrants at 2,251,875 tonnes were up 1,375 tonnes. 

Lead at $2,049 fell $22, with both stocks and cancelled warrants down 200 tonnes at 195,975 tonnes and 110,325 tonnes respectively. Sister metal zinc at $1,863 lost $17, and saw 5,275-tonne declines in stocks and cancelled warrants.

Nickel at $13,290 was $140 lower although stocks were down 162 tonnes to 193,416 tonnes .Tin slipped $165 to $19,275 tonnes and stock changes were minimal.

Steel was quoted at a wide $100/210 with no stock changes. In minor metals cobalt was indicated at 28,500/31,100 and molybdenum was neglected.

(Editing by Martin Hayes)

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