LME MORNING - Base metals follow equities, euro higher amid brighter mood

London, 06 July 2010 - Base metals rose during LME premarket trading on Tuesday on bargain-hunting amid a reversal in the dollar's fortune and a rebound in world equities.

Copper climbed back above $6,500 per tonne while nickel rebounded from four-week lows, with turnovers seen picking up as US markets reopen following the Independence Day holiday on Monday.

"Our view remains bearish but in the short term after the recent weakness it does look as though the weaker dollar is prompting some bargain-hunting and that may continue to give the metals some lift," William Adams of FastMarkets said.

The euro firmed to 1.2605 against the dollar, close to Friday's six-week high of 1.2611. It was last at 1.2590, having been as low as 1.2478 earlier, while global equities gained almost one percent.

To some extent, base metals were also helped by the latest LME warehouse inventory data that showed further stocks declines across the board, pointing to strong physical metals demand despite the start of the seasonally slow summer period.

"Inventories at the LME continue to fall with copper inventories declining to a seven-month low," Credit Suisse noted. "This indicates that physical metals demand remains strong and supports our positive medium-term view."

In wider markets, European equities gained around 1.5 percent, bouncing back from a six-week closing low, while Shanghai stocks market rose more than one percent and Japan's Nikkei rebounded from a seven-month low, rising 0.8 percent.

Fears of slowing economic growth in China eased after Lu Zhongyuan, a deputy director of the State Council Development Research centre, said that China was experiencing only a "slight slowdown" in growth but remained on track to achieve a 9.5-percent rise in GDP this year.

This helped the market shrug off comments from former IMF chief economist Kenneth Rogoff that China's property market was starting to collapse, which would have a drastic impact on the country's banks.

Meanwhile, the Reserve Bank of Australia (RBA) left interest rates steady at 4.5 percent as expected, saying the global economy had continued to expand, albeit unevenly, with growth in Asia very strong and signs of China moderating to a more sustainable rate.

Generally, sentiment towards metals remained fragile after a string of weak US and Chinese data last week, which included a disappointing US payrolls report and slowing manufacturing growth figures for both Asia and Europe.

"Base metals will continue to digest last week’s soft data in the absence of any key releases this week," ANZ said in a note. "The weaker China growth numbers is concerning, setting up a cautious tone ahead of Chinese metal import data over the weekend."

Today's economic calendar is light, with the metals market focussed on key Chinese import data due on Saturday. Some analysts expect a rise in copper imports in June to 420,000/430,000 tonnes from just below 400,000 tonnes in May.

Before that, market participants will monitor tomorrow's July options declaration, with interest seen in copper, zinc and aluminium in particular.


Copper climbed to $6,580 per tonne before settling at $6,555, up $86, as LME-registered inventories fell a net 2,800 tonnes to their lowest since early December at 441,700 tonnes. Resistance is seen at $6,568 and the 50-day moving average of $6,748, while short-term support is pegged at $6,425.

"Copper rose on speculation that last week’s fall was unfounded at a time when inventories of the metal are at a seven-month low, indicating steady demand," investment bank Fairfax said. "There could be a shortage next year if production levels do not rise in the second half of this year."

Nickel bounced from an overnight four-week low of $18,545, last trading up $350 at $19,000, as stocks fell a net 342 tonnes to 122,172 tonnes, the 20th daily decline and their lowest since mid-October last year.

This helped offset news on Monday that a tentative wage deal had been reached with unions at Vale's Sudbury operations in Canada.

The end to industrial action after almost a year could bring "significant" supplies back to the market with Sudbury accounting for about four percent of annual global nickel production, Credit Suisse noted. But the ramp-up in output will take some time.

Elsewhere, aluminium was up $27 at $1,964, holding above key support of $1,920 - last week's three-week low - and below resistance of $1,980. Stocks dropped a net 5,925 tonnes overnight to a fresh one-year trough of 4.4 million tonnes.

Tin rose $150 to $17,450 after stocks dropped a net 270 tonnes to 16,765 tonnes, their lowest since June 2009, while zinc gained $33 to $1,840 and lead climbed $22 to $1,787. Med steel billet traded at $425, up $10 from the previous close, as stocks fell a net 130 tonnes.

In the minors, cobalt was steady $37,500/41,800 per tonne after stocks fell a net five tonnes to 157 tonnes, while molybdenum was $1,000 softer at $27,500/37,500.

(Editing by Mark Shaw)