LME MORNING - Base metals slump further into negative territory as euro struggles

By: Kathleen Retourne

London 14/12/2011 - Base metals took another beating during Wednesday morning LME trading, when the market tracked a softening euro on doubts about the ability of the eurozone to emerge from the debt crisis.

The single currency is currently at 1.3025 against the dollar and has spent the morning hovering around this level. Should it drop below the psychologically important 1.3000 barrier, metals are expected to drop further still.  

"[The downtrend] is currency-led," a trader said.

Sentiment in the metals complex approaching the year-end is turning increasingly negative and pressure is building up again on the downside.

"Industrial metals prices saw a significant rally in late November. However, as December progresses the sector is gradually giving back these gains," Credit Suisse said. "With the exception of lead and nickel, all markets are now very close to the lows we saw before the late November rally."

Financial markets are jittery this morning - credit agencies Standard & Poor and Moody's Investors Services are currently reviewing credit ratings for the entire eurozone and could issue a mass downgrade at any time.

External developments have provided little joy for the metals - the US FOMC at its final meeting of 2012 held the federal funds rate at 0.00-0.25 percent as expected, and anticipates low levels at least through mid-2013.

"Fundamentals are taking a back seat more and more. The market is reflecting the wider markets, which makes it much harder to predict," a second trader added.


Aluminium slumped to its lowest this morning since the week of July 19 last year at $1,972 before it inched back to $1,975 per tonne, still $25 lower than last night's close.

Inventories in LME-registered warehouses soared to yet another all-time high on Wednesday, with further metal warranted in Vlissingen, believed to be due to Glencore delivering stocks into its own warehouses there.

Stocks jumped a net 14,725 tonnes to 4,826,275 tonnes, with 18,900 tonnes warranted in the Dutch city. In four days, inventories have climbed by 280,225 tonnes - some metal is being attracted by the Dec/Jan and Feb/March tightness.

Detroit saw 100,000 tonnes of producer material that was locked into short-term finance deals delivered; another 5,000 tonnes and perhaps as much as 100,000 tonnes are expected in the next two weeks.

"As long as the backwardation is there, the warrants will get printed," one aluminium trader said. "We could see another 100,000 tonnes delivered in the US and more warrantings in Vlissingen as well. There's a good chance we'll hit the 5 million (tonne mark) before too long."

Copper at $7,459 dropped $141 as the market paid little heed to the 10th successive daily inventory decline - stocks fell a net 875 tonnes to a 10-and-a-half-month low of 382,150 tonnes. Volumes remain lacklustre, with just 6,300 lots changing hands so far.

Support for prices was further weakened by the announcement that a three-month strike at Freeport-McMoRan Copper & Gold's Grasberg mine in Indonesia would end and workers would return on Saturday after accepting a pay rise. The strike had crippled production at the world's second-largest copper mine.

Lead fell below two-week lows of $2,058 to $2,041.50 down $43.50. Stocks ended a 12-day run of declines, rising 1,425 tonnes to 360,325 tonnes.

Nickel business at $17,923 was back below the $18,000 level, down $377 on Tuesday's closing price. Inventories fell 150 tonnes to 89,820 tonnes, while cancelled warrants were up slightly at 5,952 tonnes.

Zinc also saw a slight increase in stocks - these rose 200 tonnes to 759,800 tonnes. Prices at $1,881.50 were last down $30.50.

(Additional reporting by Martin Hayes, editing by Mark Shaw)