LME MORNING - Metals buckle as bearish mood deepens, worries over economies

By: Martin Hayes

London 03/05/2012 - Base metals headed lower after a mixed start during Thursday LME premarket trading, coming under pressure from wider concerns over demand and the economic picture.

After yesterday's sell-off and deterioration in macroeconomic sentiment, downside risks are developing, with technical pressure expected to mount, as chart patterns turn negative.

"We believe that the risks still outweigh the opportunities, we expect the price correction to continue," broker Commerzbank said.

Long liquidation and fresh selling, notably in copper, has been triggered by US data that showed that economic activity there was stuttering, while eurozone figures have underlined the perception that austerity measures are keeping economies stagnant or heading towards recession.

The metals complex has turned jittery as well, traders said, having relinquished all the upside momentum from last week's rally when most pushed up to multi-week highs. Further short-term volatility is anticipated in the run-up to Friday's key US April non-farm payrolls report.

Already, financial markets are gearing up for a below-par outturn given that yesterday's ADP report showed that the US added 119,000 jobs in April, well below the forecast 178,000.

Today, there will be a similar emphasis on figures, with the US scheduled to release the April ISM non-manufacturing PMI, Challenger job cuts, first-quarter preliminary non-farm productivity and unit labour costs and weekly unemployment claims.

"The pullback across the metals yesterday suggests that the recent rebound has run its course and that prices may head lower again," William Adams of Fastmarkets said. "Given the poor EU economic data, forthcoming elections in Europe and concerns about US employment, we are not surprised metals are under pressure."


Copper was unable to hold onto the $8,300 level and, after falling $135 on Wednesday, fell a further $55 to $8,255 per tonne this morning. But warehouse stocks declined again - down a net 3,750 tonnes at 235,200 tonnes, the lowest now since October 2008.

So far the market has avoided a more-intense sell-off, given the continued run of immediate tight prompt dates. This morning, 'TOM/next' (tomorrow/next day) was trading around $9 backwardation, having hit $24 premium yesterday.

"The market remains concerned about any potential impact of the Chinese deliveries and this combined with expected July rolls (position rolling) may keep tabs on any further forward tightness beyond May date," LME RDM Sucden said.

Although LME warehouse stocks of copper are falling, backwardations usually attract metal - China is believed to be in the process of making deliveries to Asian stores.

Aluminium relinquished its hold on $2,100, easing to $2,093, a $5 loss. Stocks dropped 11,300 tonnes to 5,004,200 tonnes.

Zinc business at $2,008 was down $12, although inventories fell 1,800 tonnes from what were 19-year highs to 927,075 tonnes. Lead traded at $2,108, a $24 loss. Stocks were down 765 tonnes at 360,325 tonnes, while cancelled warrants dropped 500 tonnes from all-time highs to 86,375 tonnes.

Nickel at $17,474 was up from a previous $17,285, however, after stocks fell 132 tonnes. Tin dropped $301 to $22,099 and steel traded at $500, up $10, while stocks were unchanged for the third successive day.

In the minors, cobalt and molybdenum were little moved at $30,000/30,900 and $30,000/31,500 respectively.

(Editing by Mark Shaw)