LME MORNING - Base metals recover from earlier lows, copper cancelled warrants jump

By: Eddie van der Walt

London 02/04/2013 - Base metals recovered from their earlier lows during Tuesday's LME pre-market session as the market re-opened after the UK four-day Easter holiday weekend.

But Monday's weaker-than-expected Chinese manufacturing PMI numbers weighed on the market, keeping metals on the back foot.

"Overall our outlook for the industrial metals is that they should pick-up some buying interest as these weaker prices may look attractive as we head into the second quarter," FastMarkets analyst William Adams said. "Our main concern is if equities sell-off, then that could see risk reduction across the board."

Copper fell to its lowest price in over seven months, even though China's official manufacturing PMI rose to 50.9 in March, up from 50.1 in February, as this was slightly below the market's expected reading of 51.2.

The seasonally adjusted HSBC manufacturing PMI number, however, came in at 51.6, just fractionally below the flash forecast of 51.7.

"The PMI report still shows improvements in various components, including orders, output and employment relative to February as well as on a quarterly basis," Credit Suisse said.

The euro, which fell to a four-month low during the Cyprus crisis, continued its modest recovery this morning. It was last at $1.282, up a tenth of a cent. The dollar index, meanwhile, drifted 0.19 lower to 82.79.

In data so far, the March Spanish manufacturing PMI came in below expectations at 44.2, and the corresponding Italian figure also came in below forecasts at 44.5. In March, Spanish unemployment fell by 5,000, however, which surprised many in the market who were expecting an increase of 30,200.

Later today, February US factory orders are forecast to come in at 3.1 percent.

In wider markets, Asian equity indices were mixed, while in Europe, the FTSE 100 gained nearly one percent to 6,468 and the German DAX added more than 50 points to 7,795. Among other commodities, Brent crude oil is up $1.56 at $11.32 per barrel, and spot gold remains near the $1,600 level, last trading up $2.40 at $1,598 per ounce.

In company news, the Glencore/Xstrata merger has been pushed back for the third time, with the deadline extended to May 2 - completion is conditional on regulatory approval in China.


On the LME, copper initially fell to its lowest price in more than seven months at $7,440 per tonne, but has since partially recovered to $7,470, still down $70.

Stocks of the metal continue to soar, rising by 1,350 tonnes to 571,125 tonnes, the highest level since October 2003. Both Johor and New Orleans received 1,500 tonnes. But queues continue to build and cancelled warrants jumped by 25,250 tonnes to 116,625 tonnes with an increase of 27,500 tonnes seen in New Orleans.

"Latest speculative positioning data shows a record net short position in copper, reflecting the very pessimistic market sentiment, which in our view is not fully justified," Credit Suisse said. "For now, trading conditions could remain subdued, but we expect prices to rebound eventually."

Aluminium also traded lower, falling $6.75 to $1,897.25 per tonne. Inventories fell by 8,975 tonnes to 5,228,425 tonnes. Detroit shed 3,500 tonnes of material and Vlissingen 3,000 tonnes. Cancelled warrants fell 8,925 tonnes to 1,945,700 tonnes.

Zinc was down $12.50 at $1,884.50 per tonne. Stocks fell 4,425 tonnes to 1,171,000 tonnes, with 2,425 tonnes leaving New Orleans and Antwerp shedding 2,000 tonnes. Cancelled warrants were 4,425 tonnes lower at 707,375 tonnes.

Lead eased $14 to $2,098 per tonne - stocks fell by 700 tonnes with the total outflow occurring in Johor - and cancelled warrants decreased by 550 tonnes to 137,400 tonnes.

Nickel drifted $145 lower to $15,515 per tonne and stocks increased by 978 tonnes. Tin was down $304 at $22,926 per tonne, with inventories unchanged.

Steel billet was last quoted at $205/250 per tonne, with stocks unchanged. In the minor metals, cobalt is at $25,000/25,750 per tonne, with Rotterdam adding five tonnes of material, taking total stocks to 451 tonnes. Molybdenum was neglected and stocks unchanged.

(Additional reporting by Gregory Holt, editing by Martin Hayes)