LME MORNING - Base metal rally continues on improving sentiment

By: Kathleen Retourne

London 27/10/2011 - Base metals rallied during Thursday morning trading, encouraged by the news of the EU’s debt crisis plan.

The EU decided upon a three-pronged attack on the region's debt crisis at Wednesday's summit - banks will write off 50 percent of Greek debt, a bailout fund of 1 trillion euros will be implemented and vulnerable banks will be recapitalised.

The base metals received a boost from a surge in the value of the euro against the dollar. The single currency peaked at 1.4037, its highest since September 8, and a sharp rise from the close on Wednesday at 1.3875.

But concerns remain that this upside will not be maintained.

“It is a currency-led rally once the market digests everything and realises this deal is not a quick fix and there is still a risk to the downside,” a trader said. “The move up has momentum for now but I see it petering out.”

 “Overall we would look for the rallies to extend in the short term but we remain bearish in the medium term and still expect the downward trends to guide prices lower in the months ahead,” FastMarkets analyst William Adams said.

Datawise, US GDP numbers will be released today and will be closely watched by the market.


Copper managed to climb back above $7,900 to reach an intraday high of $7,948 before settling back at $7,930, an increase of $250.

Fundamentals are starting to play more of a part in the red metal's prices. Warehouse stocks remain at their lowest since March 24, dropping a further net 2,750 tonnes today to 434,675 tonnes. Cancelled warrants were down, however, dropping a net 1,475 tonnes to 61,275 tonnes.

Copper has more upside potential than most other industrial metals over the medium term, broker Credit Suisse stated.

Zinc is another metal driven by fundamentals. Its inventories fell a further 625 tonnes to 784,875 tonnes, the lowest since April 18, although cancelled warrants dropped slightly to 79,925 tonnes. The metal recently traded at $1,900, a rise of $45.

Aluminium at $2,252 was up $37 - it reached a two-week high earlier of $2,268. Stocks dropped 2,550 tonnes to 4,554,450 tonnes, while cancelled warrants dropped 2,525 tonnes to 215,675 tonnes.

Tin jumped $625 to $22,000. It saw no change in its inventories, which held at 16,590 tonnes, although cancelled warrants rose 245 tonnes to 2,060 tonnes.

Nickel inventories were up 540 tonnes at 88,128 tonnes while cancelled warrants at 6,714 tonnes were up 462 tonnes. The metal recently traded $650 higher at $19,775.

Lead business at $1,975 was up $51. Stocks were effectively unchanged, edging 100 tonnes lower to 388,375 tonnes, while cancelled warrants at 20,800 tonnes increased 275 tonnes.

Steel at $525/540 dropped $4, while cobalt was quoted at $30,000/33,000 and molybdenum was bid at $26,450.  

(Editing by Mark Shaw)