LME MORNING - Metals stretch legs on upside as funds buy, several hit multi-week highs

By: Martin Hayes

London 10/01/2012 - Base metals rose solidly during Tuesday LME pre-market trading, reflecting financial market sentiment, some positive fundamental influences and technical momentum, traders said.

Multi-week highs were seen in aluminium, zinc and tin, while nickel rose to a two-month best. The complex was also supported by the start-of-the-year rebalancing exercise by the two most followed commodity benchmarks Dow Jones-UBS Commodity Index and S&P GSCI Index, which are expected to increase exposure to base metals.

"There is fund money around - it seems we are for a rally in the short term," a trader said.

Earlier, China's import data underpinned copper prices. But the overall Chinese trade numbers came in below expectations, with the country's exports and imports growing at their slowest pace in more than two years on lower domestic and foreign demand.

"Given the overall economic climate the apparent slowdown in China - as highlighted by the December trade data - we feel the upside will be limited but may lead to better selling opportunities," FastMarkets analyst William Adams said.

In wider markets, the euro was staging a mini-bounce against the dollar after hitting a new 16-month low of 1.2675 in the previous session. It touched levels just above 1.28 and then held at 1.2790.

European equity markets were higher as well on hopes that a series of meetings between eurozone officials in the coming weeks will find a solution to the sovereign crunch. In focus this week are long-term bond auctions by Italy and Spain.

But the swing in short-term sentiment may be temporary - the wider problems and issues with the eurozone remain and could become more pressing if a realistic solution is not agreed.

"Eurozone woes are too serious to enable a rally to be sustainable in this environment," the trader added.


Copper sprung above the $7,600 to trade at $7,615 per tonne, up $119 or 1.6 percent. Inventory drawdowns were maintained, with stocks down for the fifth day in a row - the net 1,525-tonne fall took the total down to 365,375 tonnes, the lowest since December 2010.

China's data showed imports of copper climbed 12.6 percent to 508,942 tonnes in December from 452,022 tonnes in the previous month, while the country's total exports grew 13.4 percent.

Aluminium also started the day on a strong foot, extending yesterday's gains to a new one-month high of $2,137 - it recently traded at $2,128, up $20. Sentiment was bolstered by producer Alcoa's comments that the global aluminium market will move into a deficit this year.

Inventories were down by 4,600 tonnes at 4,966,475 tonnes, with no repeat of Monday's surge in cancelled warrants. These eased from Monday's all-time high of 744,925 tonnes by 4,475 tonnes.

In other metals, nickel was holding near two-month highs of $19,235, with business as $19,200, up $100 still. Momentum was checked by a 2,700-tonne jump in stocks to 92,538 tonnes, the highest for three months.

Tin was $325 higher at $20,125, having earlier hit a one-month high of $20,200. Inventories dropped 60 tonnes to 11,270 tonnes, the lowest since April 2009, after the sixth successive daily decline.

Zinc jumped to $1,914.75, its highest since December 14, before recent trade at $1,907, up $28 - stocks climbed 1,075 tonnes, however, to 820,275 tonnes. Lead was $46 higher at $2,012, shrugging off stocks jumping 3,100 tonnes to 353,975 tonnes.

Steel billet traded at $535, down $5 from business yesterday - inventories rose by 845 tonnes to 74,750 tonnes, the highest since October 2010. In the minors, cobalt was quoted at $31,250/31,900 - there was a two-tonne fall in stocks to 301 tonnes. Molybdenum was indicated at $29,000/30,750.

(Additional reporting by Clara Denina, editing by Mark Shaw)