LME MORNING - Base metals stabilise alongside euro but caution remains

By: Perrine Faye

London 25/07/2012 - Base metals were little changed during LME premarket trading on Wednesday, helped by a stabilisation in the euro but capped by worries over Spain's finances.

Investors worry that Spain could be the fourth eurozone member state to seek a sovereign bailout after two of its regions - Murcia and Valencia - requested financial aid from the central government. Others are also believed to be heavily in debt.

This comes as a Greek exit from the eurozone is looking increasingly possible - the country needs to commit to more budget cuts to secure additional bailout funds from international lenders.

European shares traded sideways, moving in and out of negative territory, while the euro recouped yesterday's losses, trading back above 1.21 against the US dollar as shorts booked profits.

The common currency was last up at 1.2140 after dropping to 1.2050 earlier, close to yesterday's two-year low of 1.2040. It reached a 12-year trough against the yen.

"Given the increasing pressure on the world’s major economies and the fact we are in what is a traditional low point for industrial metals demand, we expect bearish sentiment to continue over the short-to-medium term and, with various metals approaching key support levels, a deeper correction could be brewing," FastMarkets analyst James Moore said.

Speculation of possible new monetary easing following weak manufacturing data coming from the US, China and Europe also provided some support, analysts said.

In today's data, German's IFO business sentiment index came in at a two-year low of 103.3 in July, doing "little to settle investors who are watching Spanish borrowing costs move to fresh euro-era highs above 7.5 percent", FastMarkets analyst Jono Remington-Hobbs noted.

US new home sales figures for June are due later today.

In other news, LME shareholders voted on Wednesday overwhelmingly in favour of the all-cash 1.388-billion-pound offer from Hong Kong Exchanges and Clearing Ltd (HKEx). The deal, backed by 99.24 percent of votes, is expected to be completed in the fourth quarter.  

 
CONSOLIDATION ACROSS THE BOARD

Copper prices were volatile at first today before stabilising above $7,400 per tonne, helped by the stronger euro. It was last at $7,422, up $5, after touching $7,344 earlier.

"Prices held steady as the positive effect of a drop in the US dollar was countered by weak economic data in Europe," John Meyer of Fairfax said in a report.

In Shanghai, the main copper contract hit one-month lows overnight before rebounding slightly after the International Monetary Fund (IMF) warned that China's economy faces significant downside risks and relied too heavily on investment.

LME-listed inventories were little changed, dropping a net 25 tonnes to 251,425 tonnes. New Orleans stocks fell 700 tonnes while Johor and Vlissingen stocks increased. Cancelled warrants at 51,625 tonnes are 1,600 tonnes lower.

In other metals, aluminium was last $4 higher at $1,879 per tonne, with a net outflow of 4,725 tonnes reported from the LME warehouse system, taking total stocks to 4,840,675 tonnes.

Detroit and Vlissingen saw the usual declines as required by LME rules, while stocks in Rotterdam rose 2,950 tonnes. Cancelled warrants were 7,575 tonnes lower at 1,743,700 tonnes.

Zinc was up $11 at $1,808 as stocks rose a net 1,550 tonnes, while lead dropped $7 to $1,853. Lead stocks fell for the fourth consecutive day, down another 2,150 tonnes to 332,700 tonnes, with 1,125 tonnes leaving Johor, 950 tonnes out of Bilbao and 75 tonnes out of Barcelona warehouses. Cancelled warrants at 51,600 tonnes are 2,150 tonnes lower.

Nickel erased early losses to trade at $15,720, down just $30, while tin also recovered some ground to $17,600, up $75 after reaching $17,125 earlier.

Steel billet was untraded and quoted at $376/415, down from a previous close of $405/415, while cobalt was up $1,000 at $27,000/28,200. Molybdenum was offered at $27,350 with no takers.


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

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