LME MORNING - Metals punished by resurgent dollar, turn markedly lower

London 27/10/2010 - Base metals fell across the board on the LME on Wednesday morning under pressure from a firm dollar, having reversed direction markedly in Asia, when prices were trading in the plus column, with some close to cycle highs.

The dollar has perked up on a view that next week's key Federal Reserve meeting may result in less fresh monetary easing than was previously anticipated. It was trading around 1.3820 versus the euro, having touched a firm 1.3770 at one stage.

"Profit taking and a firm dollar are putting metal prices under pressure this morning," broker Commerzbank said.

But sentiment in the complex remains positive, with the upside favoured, although a period of turbulent trading conditions seems likely to unfold.

"At the moment, it is hard to find factors that speak against further strength. Physical consumption is robust and inventories are falling," broker Credit Suisse said.

Today's daily inventory report was patchy, with increases in three of the six primary metals and the main alloy contract. But the general trend in stock movements remains to the downside, with the total stockpile of all LME materials standing at 5.893 million tonnes, down seven percent from February’s all-time high of 6.338 million tonnes.

The dollar, which had been around 1.41 against the euro at the start of the week, has bounced back, amid speculation that the US central bank may purchase fewer bonds than expected when it embarks on its next round of quantitative easing.

The Fed is likely to unveil a programme of US Treasury bond purchases worth a few hundred billion dollars over several months, the Wall Street Journal reported on Wednesday

Earlier in Asia, copper was close to the 27-month highs hit in the previous session, lead briefly traded at a new 10-month peak and zinc was also around its best since January. The subsequent slippage, however, may just see another spell of sideways trading and broad consolidation.

Price fluctuations in the run-up to next week's key US Federal Reserve meeting are expected to become increasingly jerky, but without disturbing the overall uptrend that has been in place since LME week earlier this month.

"The metals are facing a bit of a dilemma - the trends are bullish as is sentiment and recent ETF announcements have no doubt made sentiment even more bullish," William Adams of FastMarkets said.

“Prices, however, are arguably already overbought and may struggle to hold onto these high levels if the dollar now starts to rebound,” he added.

On the data side later, figures firstly on September durable goods orders and then new home sales will be released - both sets of data are metals-centric.

US figures on Tuesday were mostly positive for the industrial materials - although the S&P/CS Composite House price undershot, the Conference Board consumer confidence index, the Richmond manufacturing index and US single-family home figures all beat forecasts.


Copper, which had been trading as high as $8,547 per tonne in Asia, just $7 below yesterday's 27-month peak, fell back to $8,352. It then settled at $8,355, a $156 loss from Tuesday.

Stocks rose a net 1,125 tonnes to 368,600 tonnes from what had been 12-month lows.

But the market's target remains the $8,940 all-time high of July 2008, with recent developments on exchange-traded products (ETPs) all pointing to a tighter market. BlackRock, the world's largest asset management firm, filed an application on Tuesday to list a physically-backed ETP with the US SEC.

This follows a similar application by JP Morgan on Monday and the plan by ETF Securities two weeks ago for a whole host of these products.

"ETPs could reduce already declining LME copper stockpiles even further, adding to positive sentiment in the market," ANZ Global Markets said.

As well for copper, union workers at Chile's Collahuasi mine were expected to vote on whether to reject or approve a pay offer late on Wednesday. Union leaders recommended a vote against the offer.

Lead, at $2,619 in Asia - a fresh cycle peak - slipped to $2,547, down $47, while zinc dropped to $2,538, a $77 decline. The latter was not helped by a big delivery of stock into New Orleans - total inventories rose a net 4,825 tonnes to 611,525 tonnes.

"The price rally for zinc and lead has least fundamental justification among base metals," Commerzbank added. “This is also evident from reports of Canadian mining company Teck Resources, where production at Red Dog zinc mine, one of the largest in the world, is being expanded at a faster rate than planned.”

Elsewhere, aluminium business at $2,353 was down $37. But the 4,100-tonne fall in stocks reduced the total to 4,310,975 tonnes, the lowest for 16 months.

Nickel eased to $22,890, a $410 loss, although a rising trend in stocks was halted - they fell 282 tonnes to 126,972 tonnes. Tin eased to $26,100, a $600 fall, with inventories rising for the third successive day - up 90 tonnes at 12,825 tonnes.

Steel billet was quoted at $485/492, down $5, although inventories continue to shrink after the 24th successive daily fall - stocks dropped 325 tonnes to 53,885 tonnes, the lowest since July 20.

In the minor metals, cobalt was steady at $37,000/39,250, with a five-tonne stock fall seen. Molybdenum was indicated at a wide $31,000/37,450.

(Editing by Mark Shaw)