LME MORNING - Eurozone concerns weigh on base metals, choppy trading expected

By: Kathleen Retourne

London 31/10/2011 - Base metals continued to track lower during Monday morning trading, with the elation that followed moves by EU policymakers to tackle the eurozone debt crisis turning to pragmatism. A positive stocks report - there were drops in LME inventories across the board - offered scant relief.

The surge in base metal prices that followed the announcement of Europe’s action plan to deal with the debt crisis was undermined by the reluctance of China to embark quickly on large-scale purchases of bonds from the eurozone’s most troubled member states, although an investment on some indeterminate size from China is believed to be forthcoming.

“After the strong price gains of past days, we are seeing profit-taking for metals as the week gets underway. Pressure is coming from weaker equity markets in Asia and the firmer US dollar,” Commerzbank said.

The euro dropped as low as 1.3972 against the dollar, down from the close on Friday at 1.4146.

“That said, speculative financial investors have become more optimistic recently, reducing their net short positions in copper, for example, by 40 percent to 5,000 contracts in the week ending October 25,” it added.

Trading for the rest of the day could be interesting because it is the last trading day of the month end. With the economic outlook still looking weak despite recent moves, concerns about sovereign debt contagion, recession and slowing growth will weigh on prices.

Datawise, today’s EU CPI flash estimate at three percent beat a forecast 2.9 percent. The EU unemployment rate, however, came out worse than expected at 10.2 percent against a forecast of 10 percent.

For the rest of the week, the market will watch tomorrow’s Chinese and US manufacturing PMIs closely ahead of Friday's key US non-farm payroll figures for October.


INVENTORY DROPS ADD LITTLE SUPPORT

Many traders believe last week's copper rallies were overdone and prices have since dropped back below $8,000 to trade recently at $7,963 per tonne, a drop of $212 on Thursday's closing price.

In fundamentals, copper’s warehouse stocks continued to drop, down a net 3,000 tonnes to 429,375 tonnes, the lowest since March 17. Cancelled warrants slipped 2,775 tonnes to 52,125 tonnes, however.  

Potentially adding further price support, protesters at Freeport-McMoRan's Grasberg mine in Indonesia reportedly want to suspend negotiations with the management for a week from Tuesday.

Lead cancelled warrants rose to their highest since July 8 at 22,575 tonnes, an increase of 2,050 tonnes. Of this, 7,850 tonnes were cancelled in the US - 8,100 tonnes in Long Beach, 3,800 tonnes in Las Angeles and 4,050 tonnes in Baltimore.

Since reaching all-time highs of 388,500 tonnes on October 17, lead inventories have edged lower and are now at 387,800 tonnes, down 100 tonnes. Recent business at $2,025 was down $65.

Aluminium tightness remains, with the Dec/Jan spread at $2.00/4.00 back and Feb/March showing a backwardation of $1.00/3.00. The March/April spread is currently at $7.25 contango, however.

 “This is purely technical and only modest and should not [affect] financing carry trades, which are dated further out - where the aluminium price remains significantly in contango,” VM Metals analyst Carl Firman said.

Inventories at 4,548,025 tonnes were down 3,050 tonnes, while cancelled warrants at 210,000 fell 2,700 tonnes.  At $2,222, prices were down $20.

Nickel fell $262 to $19,438 despite stocks dropping 534 tonnes to 86,508 tonnes. Cancelled warrants were also up 90 tonnes to 6,018 tonnes.

Zinc inventories fell a further 2,475 to 780,875 tonnes, keeping stocks at six-month lows. Cancelled warrants fell 2,425 tonnes to 77,975 tonnes. Recent business at $1,949 was down $49.

Tin stocks dropped 105 tonnes to 16,445 tonnes while cancelled warrants increased 460 tonnes to 2,835 tonnes. Business at $21,941 fell $109.

Steel prices at $520/545 were down $20. In the minor metals, molybdenum inventories dropped 18 tonnes to 252 tonnes, the lowest since September 15 last year, although the contract was neglected. Cobalt was offered at $45,500.

 
(Additional reporting by Gregory Holt in Singapore, editing by Mark Shaw)

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