LME MORNING - Metals modestly higher, May Day closures crimp interest

By: Martin Hayes

London 01/05/2012 - Base metals moved higher during low-key Tuesday LME trading, capitalising on positive Chinese manufacturing figures, while the euro and UK equities were also steadier.

But conditions were thin once more due to May Day holiday closures in Asia and throughout Europe. Overall, the complex is looking to consolidate after settling back from the multi-week highs hit on Monday.

"Fundamentally, the weak economic background suggests prices can work lower but the mechanics of the LME are enabling traders to regulate the availability of metal, which is keeping supply and demand more balanced," William Adams of FastMarkets said.

On the data side, China's April manufacturing PMI, which although it came in at 53.3 against March's 53.1, undershot the expected 53.6. Nevertheless, this was the fifth successive monthly reading above the pivotal 50 level and the highest reading for 13 months. Readings above 50 signal expansion while those below 50 point to contraction.

Still, the UK PMI came in at 50.5, down from a previous 52.1 and the forecast 51.4.

The euro was inching higher at some 1.3265 against the dollar despite recent negative eurozone developments. Spain has slipped back into recession during the first quarter of 2011, which followed the ratings downgrade by S&P downgrade last week.

For the rest of the session the generally slow trend is expected to continue in the metals - on the data side the US PMI and construction spending figures are due later this afternoon.

"The complex has put in a reasonable base and any disappointments on the economic front should be met with reasonable support at last week’s lows," broker RBC said.


Copper settled back from intraday highs of $8,450, with business at $8,417 per tonne up $17 from the Monday close. Inventories fell again - down a net 6,800 tonnes to a new 40-month low of 241,550 tonnes, although there was a 9.2-percent drop in cancelled warrants to 84,925 tonnes.

But stocks may be replenished because China reportedly plans to export metal soon. An influx of copper from Shanghai into LME-listed warehouses is widely expected, with China taking advantage of the backwardation against the SHFE contango.

In the spreads, TOM/next (tomorrow/next day) was trading at $12, having ranged between $10 and $15. The cash/threes spread contracted to $125 from yesterday's 44-month peak of $150, which was due to yesterday's high-premium cash date falling out of the structure.

Lead was trading around $2,167, the highest since March 13, and up $19, with inventories falling 1,600 tonnes to a fresh three-month low of 359,500 tonnes. Cancelled warrants rose 13 percent to a new peak of 86,850 tonnes, with 10,150 tonnes cancelled in Leghorn.

Zinc rose $2 to $2,064 although there was another hefty inventory increase. Stocks climbed 12,900 tonnes to 926,550 tonnes, the highest since May 1995, due to an 11,000-tonne warranting in New Orleans.

In other metals, aluminium traded at $2,122, up $3, with inventories falling 10,400 tonnes to 5,014,500 tonnes, another two-month low. Nickel traded at $18,758 against a previous $17,895. Stocks were unchanged at a seven-month peak of 103,902 tonnes, although cancelled warrants rose 17 percent to 4,098 tonnes.

Tin was unchanged at $22,775 - stocks rose 170 tonnes to 14,510 tonnes - and steel billet held at $490/502.

Cobalt was stable at $30,000/30,800, with stocks falling five tonnes to 350 tonnes, and molybdenum was unchanged at $30,000/31,500.

(Editing by Mark Shaw)