LME MORNING - Base metals rise, Chinese PMIs priced in

By: Kathleen Retourne

London 01/07/2013 - Base metals started the week and the second half of 2013 on a brighter note following heavy losses in recent weeks after data from China came in much as expected.

The rebound in the metals is evidence of relief after Chinese PMI data came in on target, analysts said.

"Overnight China’s PMI data has come in much as expected but the earlier flash data out two weeks ago had forewarned of poor data so today’s weak readings are already largely discounted," FastMarkets' William Adams said.

“A slowdown in China’s economic activity was clearly already priced in, as the positioning of speculative financial investors also shows,” Commerzbank said in a note. “If sentiment among financial investors were to shift in any lasting fashion, however, this would doubtless contribute to significant price increases, not only in the case of base metals.”

Released earlier this morning, the June Chinese manufacturing PMI came in at 50.1, down from 50.8 in May. The HSBC June manufacturing PMI dipped 0.1 points below forecast at 48.3.

The direction of trading today will be further driven by additional manufacturing PMI data from the US, Spain, Italy and the eurozone as a whole.

"Low prices could spark some bargain hunting in the coming days and with record high US speculative net short positions, we wouldn't be surprised if there were some short-covering rallies if more encouraging news hits the market," ANZ said in a research note.

Data from the eurozone this morning was in line with expectations. The CPI flash estimate was as expected at 1.6 percent, while unemployment at 12.1 percent beat the forecast of 12.3 percent.

Later today, the US will release its ISM manufacturing PMI, final manufacturing PMI, construction spending and ISM manufacturing price data.

In currency markets, the euro gained ground to 1.340 against the dollar, up about a fifth of a cent.


WAREHOUSE QUEUES IN FOCUS

Earlier today, the London Metal Exchange said it is starting a consultation period on long queues at registered warehouses. Should its proposed measures get approval, warehouses with queues exceeding 100 days may be forced to deliver out at least as much metals as they take in. The revisions to the LME's existing regulation would be implemented on April 1 next year.

“We don’t necessarily disagree with the consensus that queues are the result of macroeconomic forces,” Charles Li, CEO of LME owner Hong Kong Exchange and Clearing (HKEx), said in a blog today.

“However, as queues continue and even get worse in some cases, we want to take a fresh look at the issue. Therefore the LME board has put forward a proposal that we believe balances the differing needs of LME members, warehouse operators and the metals industry,” he added.

Copper was last at $6,885.50 per tonne, up $135.50 on Friday's close. Stocks fell 3,500 tonnes to 662,275 tonnes while cancelled warrants, the metal booked for removal and in queues, jumped 14,875 tonnes to 369,475 tonnes. Volumes have been swift, with around 11,350 lots changing hands on Select by 11:00 BST.

In supply-side news, Rio Tinto, which operates the Oyu Tolgoi copper-gold mine in Mongolia, has still not received an export permit from the Mongolian government.

“The scheduled start of exports already had to be postponed twice in June. It would appear that the disputes between Rio Tinto and the Mongolian government have yet to be resolved, so the global copper market will have to wait a little longer for the new supply,” Commerzbank said.

Aluminium, which fell to a four year low of $1,758 last week, was last $15 higher at $1,787.50 even after stocks jumped 14,575 tonnes to 5,450,175 tonnes. Cancelled warrants fell 6,350 tonnes to 2,269,725 tonnes.

Meanwhile, in the forward spreads, tightness has once again flared up. July-three months was last showing a backwardation of $36.

Zinc rose $13 to $1,866. Stocks fell 5,400 tonnes to 1,056,075 tonnes and cancelled warrants fell 5,250 tonnes to 687,050 tonnes. Sister metal lead at $2,072 was up $10 after stocks fell 100 tonnes to 198,200 tonnes.

Nickel at $13,909 was $164 higher even after stocks rose 228 tonnes to 187,716 tonnes and cancelled warrants at 24,240 tonnes were down 894 tonnes. Tin at $19,825 was up $22; stock movements were routine.

Steel was quoted at a wide $100/210. In the minor metals, cobalt was indicated at $31,000/33,000 after a six-tonne increase in stocks to 464 tonnes while molybdenum was neglected.


(Additional reporting by Eddie Van der Walt, editing by Mark Shaw)

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