LME MORNING - Base metals steady ahead of FOMC, aluminium stocks climb on backwardation

By: Eddie van der Walt

London 13/09/2012 - Base metals held steady below recently set multi-month highs in LME premarket trading on Thursday, as the focus shifts to a statement by the US Federal Open Market Committee (FOMC) due out later today.

Copper, aluminium and zinc, all of which set four-month highs on Wednesday, are base-building, but the underlying tone remains robust, traders said.

In Washington, the FOMC is widely expected to give a clear indication of when and under what circumstances a third round of quantitative easing (QE3) will be announced in order to reignite the flickering US economy.

"We think the majority of voting members will want to initiate a new Large Scale Asset Programme - in other words, QE3," ANZ said in a note. "Asset buying is likely to be open-ended with sizeable monthly flow, about $50 billion to $100 billion, based on previous QE experience."

Yesterday's rally in metals was brought about by news that the German Federal Constitutional Court ruled in favour of the legality of the European Stability Mechanism (ESM), brought about after the Greek crisis.

However, not everyone agrees that the ESM and the later announced package of unlimited bond buying, is enough to solve the region's problems. Some traders said that with economic growth low and manufacturing globally still disappointing, current actions are crisis management, as opposed to crisis resolution.

"Doubts will persist over the durability of this feel-good factor, but for the time being there is little to shake the new-found belief that hard assets are the place to be," one trader added.

The euro appears to have passed one test, at least, with two pro-European parties winning the majority of the vote in yesterday's Dutch elections. When the governing coalition fell in April, due to EU-imposed budgetary restrictions, some thought anti-Brussels sentiment would give fringe parties an increased share.

In currencies, the euro continued to capitalise, adding $0.0017 to 1.2919. The dollar index was last at 79.63, down 0.06. Oil saw Brent crude climb 23 cents to $115.44.

Important data out today includes US August PPI, August Federal Budget Balance and the weekly unemployment claims.


Copper dipped below its four-month high set yesterday, last trading at $8,087, down $9 on the close. Stocks of the metal, which appear to have arrested a downward trend, were last at 216,325 tonnes, 550 tonnes higher, with Busan's inflow of 1,100 tonnes outbalancing outflows elsewhere. Cancelled warrants increased by 325 to 29,775.

Aluminium was last at $2,089 per tonne, up $3 on the close. There was a big increase in stocks of the material, not a surprise as the market's Sept/Oct spread is currently in backwardation.

The Sept/Oct spread is tight, with a $17 backwardation trading. The September 'third Wednesday' prompt date trades next Monday.

The backwardation may have had a hand in the net increase of 117,000 tonnes of warehoused aluminium, taking the total on-warrant material to 4,971,325. The biggest increase was in Detroit, where 96,925 tonnes were received, with New Orleans adding 24,875. Cancelled warrants decreased by 9,225 to 1,591,525 tonnes.

Lead stocks decreased by 2,575 tonnes to 295,825 tonnes. Singapore saw 1,500 tonnes leave warehouses, with Rotterdam and Barcelona losing 375 tonnes each. Cancelled warrants decreased by 2,575 tonnes to 105,225. The metal was last trading at $2,127 per tonne, $2 higher.

Zinc stocks continued their downward trend, falling since August 16, this time dipping by 2,900 tonnes to 927,150 tonnes. 1,500 tonnes left Port Klang, Malaysia and 1,350 New Orleans. Cancelled warrants were 2,900 down, taking the total to 125,125. The metal was last at $2,020, up $2.

Tin tumbled by more than two percent, it was last at $20,350, $445 down on the close, with just over 250 lots traded. Warehouse stocks increased by 25 tonnes to 11,690 tonnes. Cancelled warrants, at 7,135 were 40 higher.

Nickel added $92 on the overnight close, taking it to $16,742 per tonne. Warehouses stocks rose by 66 tonnes to 120,882 tonnes. Cancelled warrants dipped by 84 tonnes to 13,896. Steel billet was quoted at $330/348, while minor metals cobalt and molybdenum were neglected.

(Editing by Martin Hayes)