LME MORNING - Metals target mid-month highs on short covering, buoyant equities

London, 21 July 2010 - Base metals mounted a challenge of mid-month highs on Wednesday, underpinned by an generally softer dollar, cheery sentiment on stock markets and as shorts closed positions as the northern hemisphere summer holiday period unfurls.

But ‘third Wednesday’ trade capped volumes in the morning session, while new shipments of aluminium and Mediterranean billet into LME-registered warehouses were shrugged off, which typical during the third week of each month.

Copper touched its most expensive since late June above $6,775 per tonne while tin hit a 10-week best of $18,400. Nickel, zinc and lead also appeared ready to mount an upside break towards the summits seen in June.

Rallies were underpinned by improving equities sentiment after technology bellwether Apple posted its highest ever quarterly results, as well as inventories that continue to dwindle for most metals.

But rallies were technical in nature and for the most part lacked "real" business to back them, traders said.

"We are now in the summer holiday period and have been for the last few weeks," a London trader said. "You could see signs of an extended summer holiday period approaching because more and more customers wanted averaging and less fixed price, plus there was more warranting business. Customers tend to take warrants rather than a whole shipment because they don't want to be stuck financing over summer."

"It's amazing how prices are holding up - but that's also due to the currency and short-covering on equity markets... People are quite positive for the fourth quarter but we won't really see that business start up until August is good and over," he added.

Base metals began to rally late on Tuesday supported by a round of short covering after a rise in US building permits in June, as well as talk that French and Spanish banks were likely to pass European bank stress tests, the results of which are due for release on Friday.

Poor sentiment on stocks following patchy results from IBM and Goldman Sachs reversed after better-than-expected earnings from Apple triggered a turnaround in sentiment on Wall Street.

Apple far exceeded expectations with its latest quarterly report on Tuesday - net income rose 78 percent to $3.25 billion.

Gains extended into European hours: key share indices advanced about 1.5 percent. The dollar at 1.2840 against the euro had cut losses but remained not far from two-month low of 1.3027 touched on Tuesday.

There is little in the way of US economic data today but the earnings calendar from the US includes Coca-Cola, Morgan Stanley and Wells Fargo.

BHP COPPER OUTPUT COULD FALL 5-10 PCT

Steadily declining stocks continue to bolster prices of copper, while the outlook for supply is eroded at the margins on declining ore grades and safety-related shutdowns.

Stocks fell for the 24th session, down a net 1,975 tonnes to their lowest in more than eight months at 417,625 tonnes, with withdrawals and cancelled warrants centred on South Korea's port of Busan

Meanwhile, mining giant BHP Billiton said that its copper output this year could fall 5-10 percent as ore quality falls during this financial year. It logged an 11-percent decline in production to 1.1 million tonnes due to problems including a shaft outage at Olympic Dam, industrial action at Spence, lower grades at Cerro Colorado and Antamina and the end of sulphide mining at Pinto Valley.

Meanwhile, Zijin Mining, a major gold and copper producer in China has not yet disclosed how much copper output it will lose due to leak at its smelter. A safety investigation at the 100,000 tonne-per-year operation continues.

On the charts, copper is attempting to break out of a large symmetrical triangle formation. A close above $6,803 would be a very bullish outcome, providing platform from which to challenge the 200 DMA at $6,983, Jono Remington-Hobbs at FastMarkets noted.

Aluminium cut gains to near unchanged after inventories rose for a second session into US locations, typical for the ‘third Wednesday’ week, before tracking copper up to $1,994, up $23. A large 6,125-tonne warranting was registered in Detroit warehouses, with a smaller 1,425-tonne shipment arriving into Toledo. The headline figure rose a net 2,925 tonnes.

Nickel was caught in copper's slipstream, last at $19,270, up $145. It faces resistance at 19,618 its mid-July high.

The metal seemingly shrugged off news that talks between Vale and United Steelworkers members at its Voisey's Bay operations have broken down again. Around 130 unionised miners and mill workers have been on strike at Voisey’s Bay since August 1, 2009.

Vale resumed partial production there earlier this year with non-union workers at a rate of about 19,000 tonnes of nickel and 15,000 tonnes of copper per year but this material has had minimal impact on the physical market, where material remains extremely tight. LME stocks were down 444 tonnes to a 10-month low today.

Zinc stocks fell 50 tonnes and business at $1,890 advanced $15 with its July ceiling close at $2,005. Lead inventories dropped 1,150 tonnes and business at $1,851 was up 14 - the two metals have moved in lock-step in recent days. Both climbed 3.5 percent on Tuesday.

Three-month tin reached $18,400 per tonne, up $160 from Tuesday and its most expensive since May 4. Having risen on Tuesday, LME inventories resumed their decline today, falling a net 145 tonnes to 15,685 tonnes, the lowest since June 9, 2009.

Med billet registered another large stock inflow in Turkey - this time into Kocaeli - which accounted for the total headline addition of 5,980 tonnes to their highest since February 11, 2009. Med billet was quoted at $435/450, having traded at $443 on Tuesday.

The minor metals contracts were untraded, with molybdenum offered at $33,000, up $500, and cobalt indicated at $36,900/37,900, down $100. Inventories in both were unchanged today.

(Editing by Mark Shaw)

RELATED TOPICS