LME MORNING - Metals mostly higher, poised ahead of European meetings

By: Martin Hayes

London 04/09/2012 - Base metals held at steady levels during Tuesday LME pr-market trading, mostly consolidating the gains that kicked off the fresh month yesterday, aided by positive charts, traders said.

Aluminium stood out, rising to a two-month high, while lead reached a fresh two-and-a-half-month best - both metals are seeing tightness within their spread structures.

"Some of them are getting close to the highs of their ranges and not coming off. But, in the end, it will be influenced by the outside factors," a trader said.

Overall, the complex is gearing up ahead of key news flow later this week - the ECB meeting on Thursday and the US August jobs report, which rounds off the data releases on Friday.

"The technical short-covering continues amid a backdrop of stimulus expectation but the real story here is surely continued and widespread manufacturing contraction... The market has learned not to fight these counter-intuitive rallies and I think in all likelihood we will continue to see further strength led by the algorithmics," another trader said.

A steadier euro at around 1.26050 against the dollar also provided a supportive backdrop - it was close to a two-month high of 1.2638 hit last week

ECB President Mario Draghi raised stimulus hopes on Monday when he said that purchases of short-term sovereign bonds by the bank would not breach European Union rules. Last week, the US Federal Reserve also left the window open for another bond-buying programme.

But metals were tinged with caution amid growing concerns over the economic slowdown in top consuming country China. China's most recent manufacturing PMI came in below forecast on Monday and expectations for another interest rate cut this month may not be enough to stimulate further growth, analysts said.

For today, there is a slate of US releases scheduled, including the August ISM Manufacturing PMI, Final Manufacturing PMI and ISM Manufacturing Prices and July construction spending figures.


Aluminium extended Monday's technical breakout through $1,920, hitting its highest for two months. Business was seen up to $1,947.75 per tonne before recent trade at $1,940, up $13 from Monday.

Growing September tightness was also a factor, with the Sept/Oct spread trading at $2.50 and $2.00 backwardation. The crunch spell is Sept/Sept 21, where a $4.00/5.00 premium is in place. Inventories, meanwhile, dropped a net 6,475 tonnes to 4,878,475 tonnes.

Lead popped back above the psychological $2,000 level to trade at a fresh high since May 16 at $2,007.25 before settling at $2,004, up $5. Inventories notched up their 16th successive daily decline, falling 2,150 tonnes to 305,725 tonnes, the lowest since late-April 2011.

Tightness is a factor here as well, with cash/threes around level and November onwards in backwardation.

Copper faltered in an early run-up towards $7,700, slipping back to $7,660, an $18 loss. Stocks fell for the seventh day in a row - down 6,475 tonnes to 218,800 tonnes, the lowest since May 17, due to withdrawals from Korean warehouses.

In other metals, nickel was unchanged at $16,220 after inventories fell 60 tonnes to 119,724 tonnes. Zinc was $3 higher at $1,878, with stocks dropping 1,525 tonnes to 949,550 tonnes.

Tin was $75 lower at $19,675 - it was the exception to the general trend in stocks, which rose 50 tonnes to 11,685 tonnes.

Steel was neglected, while inventories were unchanged at 50,115 tonnes. Cobalt was steady at $29,000/30,000, with stocks static at 361 tonnes, and molybdenum was neglected.

(Additional reporting by Perrine Faye, editing by Mark Shaw)