LME MORNING - Metals check back as corrective bounce hits buffers, wider backdrop negative

By: Martin Hayes

London 15/12/2011 - Base metals consolidated below their early highs during LME Thursday premarket trading after an earlier kneejerk bounce in response to Wednesday's heavy losses stalled.

Similarly, the euro fell back below 1.30 against the dollar to some 1.2975, albeit managing to hold above 11-month lows of 1.2943 hit during the previous session's slump. In Europe, shares were also trimming gains, standing little changed, while sentiment remains under pressure.

"There was a bounce but it was nothing more than a reaction, and with the euro and stocks a bit better," a trader said.

Copper and lead ticked up from fresh three-week lows and nickel from a two-week low, while zinc moved away from its weakest for nearly two months. But the upmoves were little more than a corrective response to Wednesday's steep losses.

Wider financial market sentiment remains negative, given mounting concerns that the eurozone is still not tackling the sovereign debt crisis effectively in the wake of last week’s inconclusive EU leaders summit.

The lack of a definitive plan to resolve the eurozone crisis prompted investors to take a risk-averse stance on commodities, while the approaching end-of-year holidays provided an additional incentive to close out positions.

In the metals complex, liquidity will become increasingly thin over the next few sessions, which will result in continued volatile and erratic trading, given end-year considerations and forthcoming data-flows.

"Given the run of weakness across markets in recent days, prices look oversold in the short term so we would not be surprised by some rebounds as long as data and news flow are not too bearish," William Adams of FastMarkets said.

Today, the preliminary HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, rose to 49.0 in December form a final reading of 47.7 in November. In Europe, French and German manufacturing PMI also came in better than expected.

Later in the session, US releases include the December Empire State and Philly Fed manufacturing indices, the November PPI and capacity utilisation rate, November figures on industrial production, October TIC long-term purchases, the first-quarter current account balance and weekly unemployment claims.


Copper whipped widely between an early three-week low of $7,131 and a peak near $7,300 before settling at $7,245, up $35 still. Warehouse inventories fell for the 11th day in a row - down 75 tonnes at 382,075 tonnes, the lowest for 11 months.

There was also an 81-percent jump in cancelled warrants - metal booked for removal - to 38,125 tonnes. This reflected a 12,500-tonne cancellation in New Orleans and 6,225 of the 7,800 tonnes in Hamburg being cancelled.

Aluminium business at $1,983 was up $20 - prices had fallen as low as $1,955.75 in the previous session. A four-day run in big inventory increases was arrested - stocks fell 800 tonnes from what were all-time highs to 4,825,475 tonnes.

But traders anticipate further big warrantings in the short term, with stocks seen hitting 5 million tonnes.

In other metals, lead traded at $1,984, down $14, even after stocks fell 675 tonnes to 359,650 tonnes. Zinc was off its highs but at $1,857 was still $12 higher, with inventories falling 900 tonnes to 757,900 tonnes.

Nickel rose to $17,575, up $375, having hit $17,326. Stocks fell 276 tonnes to 89,544 tonnes. Tin business at $18,800 was up $275 but stocks rose 100 tonnes to 12,115 tonnes.

Steel was steady at $550/558. In the minors, cobalt was quoted at $29,000/31,500, while there was a one-tonne increase in stocks to 320 tonnes. Molybdenum was neglected.

(Additional reporting by Gregory Holt in Singapore, editing by Mark Shaw)