LME MORNING - Metals climb on weak dollar, Chinese equity strength

By: Barbara Davis

London 12/10/2011 - Base metals rallied across the board on Wednesday, boosted by a softer dollar, buoyant Chinese equities and optimism that eurozone policymakers will find a debt resolution imminently.

In Asia, the Shanghai Composite Index was 3.1 percent higher at one point - its strongest since October last year - on news that a government investment fund had bought shares in major banks.

The US dollar fell to a three-week low against the euro on high hopes that a solution to the eurozone debt crisis is ion the offing, triggering a bout of short-covering that pushed the single currency as high as 1.3806 against the dollar.

But the risk of a deeper sell-off in metals has not abated while G20 leaders struggle to tackle the crisis. Investor jitters were stoked on Tuesday after Slovakia failed to ratify a key European-wide bailout fund.

“The overall mood is one where there is less concern about an imminent return to the downside, with the market willing to take on a bit more risk again,” FastMarkets analyst William Adams said.

"This fits in with our overall view that, after the deep pullbacks of late, the market needs to adjust to the weaker prices, which may well mean more near-term pricing is done," he added.

Metals were also supported by the latest European industrial production figures, which showed that output rose 1.2 percent in August - the largest gain since November 2010 - surpassing forecasts for a drop of 0.8 percent.

FOMC members Richard Fisher and Charles Plosser are due to speak ahead of the release of FOMC minutes at 1900 BST, followed by a speech by ECB president Jean-Claude Trichet at 19:30.


ALUMINIUM DEMAND SET TO FALL IN EUROPE

Aluminium producer Alcoa unofficially kicked off the US earnings season last night with a warning that European demand for the lightweight metal will drop 13 percent in the second half of 2011 from the first half of this year.

But the drop will prove temporary, CEO Klaus Kleinfeld said. “The slowing markets have not changed the underlying fundamentals,” he said. “The fundamentals are the mega-trends, the mega-trends of growing population as well as urbanisation.”

Aluminium at $2,238 per tonne was up $8. Inventories fell 2,975 tonnes to 4,555,700 tonnes and cancelled warrants fell 2,075 tonnes to 232,100 tonnes.

Copper recently traded at $7,438, up $148, after stocks fell 1,525 tonnes to 457,000 tonnes although cancelled warrants fell 2,525 tonnes to 45,675 tonnes.

The recent surge in cancelled warrants for copper has provided some clues about end consumers using the recent price weakness to pick up bargains.

“While physical demand looks fairly resilient, tightening credit conditions and uncertainty in the macro picture are the more likely price guides in the near term. As such, derisking pressures may not be over yet, which leaves the cyclical metals space vulnerable to renewed unwinding of exposure,” broker Credit Suisse said.

Zinc was $39 higher at $1,958 after stocks and cancelled warrants both fell 2,150 tonnes to 801,550 tonnes and 68,150 tonnes respectively.

Lead gained $37 to $2,022, shrugging off a rise in inventories of 1,175 tonnes to 386,850 tonnes, yet another all-time high.

Nickel rose $321 to $19,196 after stocks fell 720 tonnes to 91,782 tonnes and tin rose $325 to $22,775 after stocks fell 320 tonnes to 18,910 tonnes.

Steel billet was last indicated at $540/555. Cobalt was indicated at $30,000/32,500 and molybdenum at $28,000/30,100.

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