LME MORNING – Dollar sinks, but fails to radically push base metals pendulum

London 15/10/2010 - Base metals traded sideways Friday morning, hovering around yesterday’s closing levels as the dollar’s decay failed to inject the complex with fresh momentum at the end of London’s LME Week.

“It would appear the 'buy the dips' mantra still dominates,” William Adams, analyst at FastMarkets, said on Friday.  “Certainly it’s been a very bullish LME week and it would appear that most expect more of the same. That said, there were more than a few people who thought it was only the weight of money being pumped into the metals that was driving it.”

On Monday, ETF Securities said it is preparing to introduce a range of physically backed base metals ETCs, subject to approval from the London Stock Exchange. Scott Thompson, head of European sales at ETF Securities, told FastMarkets that base metals ETCs wouldn’t cause price rallies and boost volatility, as investors have different agendas.  “We don’t necessarily believe that the financial investors and the industrial producers would be both buying at the same time,” he said.

But others disagree, citing concerns that include significant warehousing costs, wild price distortions and the potential for market manipulation.

Standard Bank compared the physically backed ETFs to material held in financing deals, such as material that is visible and ultimately available to the market, but only under certain conditions.  “Given human nature however, when markets are looking scarce demand for ETFs will increase, and vice versa, therefore exacerbating volatility around those turning points in the market balance as it shifts from deficit to surplus and back again.”

The dollar was dragging near nine-month lows around 1.4100 versus the euro as financial markets geared up for this afternoon's plethora of US macroeconomic data announcements.

“The common denominator pushing asset prices higher is the dollar weakness – so we need to remember that the strength of the metals is not just a metal market phenomenon,” Adams said.

Today’s data starts with September CPI and Retail Sales at 1330 BST, with economists expecting an increase in consumer prices of 0.2 percent versus 0.3 percent in August, while Retail Sales are expected to grow at the same pace of the month prior at 0.4 percent.

The October Empire Manufacturing Survey will also be released at 1330 BST, followed by the Michigan Sentiment data for October, with economists expecting a rise to 68.5 from 68.2 last month, and August Business Inventories, with economists forecasting 0.5 percent, up from 1.0 percent in July.

Traders will also scrutinise US Federal Reserve Chairman Ben Bernanke's speech at 1315 BST on Friday for clues on the Fed's next policy steps, as the US recovery falters and the market increasingly expects more quantitative easing to support growth.  

STOCKS DWINDLE

Copper ranged within a stone’s throw of Thursday's close of $8,400, after hitting a 27-month high of $8,490 per tonne on Friday. The price of the metal has risen nearly 40 per cent since early June and is within striking distance of the all-time high of $8,940 set in mid-2008

Stocks continued to fall, dropping a net 475 tonnes to 371,025 tonnes, the lowest since late October 2009, and treatment and refining charges (TC/RCs) of copper are currently recovering markedly on the spot market, according to analysts at Commerzbank.

Tin, which traded at $26,800, was down $150 from yesterday, after climbing to yet another record high at $27,300 on Thursday.  As supplies remain tight, many market participants are targeting the $30,000 level.

“Production problems in Indonesia, the world’s second-largest producer and largest exporter of tin, are increasing,” Commerzbank noted.

Aluminium traded at $2,404, down $5, after reaching a five-month best of $2,459 on Thursday.  Stocks fell for the 22nd successive day - down 4,125 tonnes at 4,313,975 tonnes, the lowest again for 16 months.

Zinc, which touched a five-month high of $2,442.50 on Thursday, traded at $2,410, down $5. There was an 11th successive stock fall, with inventories down a net 1,025 tonnes at 608,250 tonnes, the lowest since May 24.

Zinc’s sister metal lead traded at at $2,409, up $12, after hitting $2,473, its highest since January 19.

Nickel traded at $24,239, down $95, while inventories rose for the fifth day on the trot - up 36 tonnes at 124,176 tonnes, the highest since the end of June.

Steel, which traded at its highest since September 24 on Wednesday at $478, was indicated at $475/490.

In the minors, cobalt and molybdenum were quoted at levels of $36,800/38,900 and $30,500/37,450 per tonne respectively.

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