LME MORNING - Copper tumbles below $9,300 as traders take off risk

By: Barbara Stcherbatcheff

London 25/01/2011 - Base metals dived unanimously on the LME on Tuesday morning when poor macroeconomic indicators from Europe and persistent worries about Chinese inflation ushered more risk-averse sentiment into the markets.

Three-month copper traded as low as $9,275 per tonne, down more than 2.5 percent, and both zinc and lead took a heavy beating. Today’s lead inventory report also contributed to the overall bearishness, with stocks rising 4,525 tonnes to 271,300 tonnes, the highest since May 4, 1995.

In currency markets, the pound dropped to its lowest in more than a month, while the euro weakened from a two-month high against the dollar after data showed that UK’s economy unexpectedly shrank in the fourth quarter of 2010 by 0.5 percent, missing analysts’ expectations for a 0.5-percent gain.

“On the charts, copper appears to be rolling over again, lead, zinc and aluminium seem to be continuing their down trends and tin’s and nickel’s upward moves have halted,” FastMarkets analyst William Adams said. “The metals may well pull back further.”

Last week, China announced that GDP growth in the fourth quarter of 2010 increased to 9.8 percent, while inflation slowed less than forecast.

Elsewhere, the IMF said the decision to restart quantitative easing in the US has “significantly improved” the outlook for growth in the world’s biggest economy. The IMF has raised its 2011 growth forecast by 0.7 percentage points to 3 percent.

The Federal Reserve will meet today and President Obama will deliver his state of the union address expectations ahead of a housing report that economists expect to show that property prices in November fell by the most in a year. The FOMC’s rate decision is due on Wednesday, with economists expecting borrowing costs to be held at 0.25 percent.

On the data calendar, traders will be watching for US consumer confidence at 15:00 GMT, while the FHFA house price index will be released at the same time.

In news, LCH.Clearnet, which clears metals traded on the LME, is increasing margins for copper, tin and nickel, while reducing the rate for steel billet, it said on Tuesday.


Lead traded at $2,357 per tonne, a $64 loss, with key technical levels now broken as the metal has plummeted nearly 14 percent in the past couple of weeks. 

“Lead finally failed to retake the long-term bullish up trend line at $2,721 on January 17. This failure created substantial downside momentum, allowing the metal to break below multiple support levels, including the 7 DMA, 21 DMA, 50 DMA and 100 DMA,” Jono Remington-Hobbs, analyst at FastMarkets, said.

“We are looking for an attempt to consolidate in the coming sessions.,” he added. “Support is seen at $2,334-$2,326 (UTL)-$2,311.  Failure to do so would open up $2,295-$2,280-$2,252 as the next downside targets.”

Zinc was down $61 at $2,241 and copper lost $236 to $9,293. Stocks of the red metal rose a net 7,575 tonnes to 389,075 tonnes, the highest since September 15, 2010. Aluminium lost $45 to $2,375.

Nickel traded at $25,600, down $550.  In corporate news, Vale subsidiary PT Inco has reached a new collective agreement with union workers without leading to any stoppages, according to broker Fairfax.  PT Inco produced 67,000 tonnes of nickel in matte in 2009, and is expected to maintain this level last year.

Tin appeared relatively solid compared with the other metals, trading at $27,800, down just $295, after hitting a fresh all-time high of $28,190 on Monday. Tin stocks are at their highest since June 30, 2010.

Steel billet was indicated at $560/580. In the minors, cobalt was indicated at $38,000/44,200 while molybdenum was bid but not offered.

(Editing by Mark Shaw)