LME MORNING - Base metals track euro higher, remain susceptible to currency fluctuations

By: Kathleen Retourne

London 27/04/2012 - Base metals were back in positive territory on the LME on Friday morning, building on yesterday’s gains and tracking the euro higher - the single currency is now back up at 1.32 against the dollar after dipping below that level.

The complex had slipped earlier after the euro, which had been holding up relatively well considering the wider economic outlook, lost its footing after Standard & Poor’s downgraded Spain by two notches to BBB-plus.

The downgrade could affect Spanish bond yields today - there are concerns that yields could rise above six percent.

Data releases scheduled for Friday include Germany's GfK German Consumer Climate index for April, the US first-quarter advance GDP growth rate and employment cost index, and the revised UoM consumer sentiment index for April, with more frontline figures due next week

“Next week’s data will be important for commodities with US and Chinese PMIs, and US non-farm payrolls due. A confirmation of stabilising economic growth could provide the much needed impetus for commodity markets to push higher,” Credit Suisse said.

Copper is back above $8,300, recently trading at $8,356 per tonne, up $34 on the previous day’s close. Inventories dropped 3,525 tonnes to 251,825 tonnes, the lowest since November 5, 2008.

Drawdowns were widely spread, with the largest from New Orleans at 1,775 tonnes and Busan at 1,000 tonnes. Stock increases in Europe were negligible - 150 tonnes in Hull and 650 tonnes in Rotterdam.

Cancelled warrants have been watched closely of late while tightness in nearby spreads persists. Today saw another drop in cancelled warrants to 99,550 tonnes, down 5,950 tonnes. As yet, the drop in cancelled warrants has yet to affect tightness, with backwardation levels still high and Tom/Next is still back at $5/8 back.

China is believed to have built up stocks of as much as 1 million tonnes of the red metal in recent months, with spot demand soft and end-users well covered.

“This is one reason the immediate upside to copper prices may be limited. Nevertheless, with China’s economy bottoming out, we believe copper quotations could be somewhat better supported through second half of 2012,” Bank of America Merrill Lynch said.

Aluminium at $2,106.25 was up $20.25 and back above $2,100 for the first time since April 17. Stocks saw another drawdown, losing 10,725 tonnes to 5,035,625 tonnes, with no locations reporting any increases. Cancelled warrants were down at 1,646,975 tonnes, a 3,300-tonne drop.

Lead business at $2,138.25 was up $15.25. Inventories fell 2,100 tonnes to 363,375 tonnes, primarily due to a 1,275-tonne decline in Port Klang, Malaysia. Cancelled warrants jumped for the eighth consecutive day to a fresh all-time high of 68,650 tonnes due to 29,150 tonnes of metal being booked for removal from Bilbao, Spain.

Nickel at $18,360 is up $160 on rising spot demand. Inventories were up 1,026 tonnes at 101,760 tonnes, the highest since November 5, due to a 1,054-tonne increase in Rotterdam. Cancelled warrants were down 46 tonnes to 3,540 tonnes.

“The price of nickel has gained around 5 percent in the past three days [but] this is doubtless due in part to the imminent hike in export duties levied on nickel ore in Indonesia, the world’s third-largest nickel mine producer,” Commerzbank said.

Zinc stocks were down 100 tonnes at 910,575 tonnes and cancelled warrants increased to 42,375 tonne, up 2,000 tonnes. Still, prices were little changed, rising to $2,039.25, up just $4.25.

Tin at $22,500 was $201 higher. Stocks rose 515 tonnes to 14,405 tonnes, a level last hit in November. Cancelled warrants slipped 40 tonnes to 1,265 tonnes.

Steel was quoted at $490/502, with stocks are unchanged at yesterday’s levels. In the minor metals, cobalt was indicated at $30,000/30,750 and molybdenum at $30,000/31,500.

(Editing by Mark Shaw)