LME MORNING - Base metals in consolidation mode, headlines and data to drive market

By: Kathleen Retourne

London 27/02/2013 - Base metals were mixed in Wednesday morning LME trading in unsettled and nervous conditions. Data releases and currency fluctuations are likely to be the key drivers and could result in further choppy trading throughout the day.

“The base metals have been weaker in recent weeks so they are not showing over-confidence. The question therefore is whether the broader markets will start to follow the lead from the industrial metals and whether that will cause a further downdraft across markets in general,” FastMarkets analyst William Adams said.

Italy has been under scrutiny this week. The lack of a clear winner in the weekend's general elections in Italy resulted in a downturn in equities, a rise in Italian and Spanish 10-year bond yields and a drop in the euro.  

Italian voters split the vote between the centre-right, led by Silvio Berlusconi, the centre-left, led by Pier Luigi Bersani and the anti-politics Five Star Movement led by former comedian Beppe Grillo. Former interim Prime Minister Mario Monti polled a distant fourth.

And with the Five Star Movement vowing not to form a coalition, this has made the likelihood of a stable government highly precarious.

Italian 10-year bond yields were last at 4.83 percent in this morning's auction, rising from 4.17 percent at the previous auction of debt and the highest rate in four months. Still, the country sold all 6.5 billion euros of 10-year and five-year bonds on offer.

The euro is slightly firmer this morning, adding about a fifth of a cent to 1.308 against the dollar.

In the US, investor fears that the Federal Reserve would curtail its bond-buying programme were assuaged by chairman Ben Bernanke's testimony supporting continued stimulus measures until there was clear evidence of a sustained recovery in the US economy and labour market.

“Compared to the last Fed meeting minutes, Ben Bernanke’s semi-annual Senate hearing was overall more dovish,” Credit Suisse said. “Overall, his remarks and other relevant Fed speeches appear to confirm that a reduction of asset purchases is not imminent.”

Data from the eurozone this morning was mixed. GfK German consumer climate was as expected at 5.9 and euro M3 money supply was up at 3.5 percent. But German import prices disappointed at 0.1 percent against an expected 0.5 percent and private loans underperformed at -0.9 percent. EU retail PMI at 44.5 also undershot the previous 45.9.

US core durable goods orders and pending home sales are due for release later, while Bernanke provides a second day of testimony and ECB president Mario Draghi will speak this afternoon.


METALS LITTLE CHANGED, COPPER STEADY

Copper at $7,858.25 tonne was down just $0.25 on the previous day’s close after earlier peaking at $7,919. Stocks rose for the 10th consecutive day, up a net 5,975 tonnes at 444,350 tonnes due to arrivals in Johor, New Orleans and Incheon - inventories have risen 68,350 tonnes or 18 percent since the start of February.

Cancelled warrants - metal booked for delivery - continued to decline, falling 650 tonnes to 26,725 tonnes.

Zinc fell $10 to $2,088 after stocks jumped 18,125 tonnes to 1,194,250 tonnes due predominantly to a 15,525-tonne increase in Vlissingen. This location now holds 30,275 tonnes of zinc - at the start of the year, it held just 13,750 tonnes.

Aluminium was down $7 at $2,015, an intraday low. Volumes have eased off compared with yesterday, with around 6,500 lots changing hands on Select so far today, although it continues to outpace copper, where around 6,100 lots have traded electronically.

In the forward spreads, June/July was last at a backwardation of $21, Sept/Oct at $3/6 back and Dec/Jan at $7 back. Stocks rose 5,325 tonnes to 5,161,100 tonnes while cancelled warrants dropped 8,900 tonnes to 1,920,650 tonnes.

Lead at $2,309 was $12 higher after stocks fell 150 tonnes to 287,950 tonnes and cancelled warrants climbed 400 tonnes to 151,225 tonnes. Nickel, which closed negatively yesterday, was up $190 at $16,655 and cancelled warrants fell just 18 tonnes to 24,072 tonnes.

Tin was last at $23,361, a $61 increase, with stocks stagnant at 13,705 tonnes and cancelled warrants rising 310 tonnes to 2,465 tonnes.

Steel was last offered at $330, while cobalt was indicated at $25,000/25,800 and molybdenum was offered at $24,700.


(Editing by Mark Shaw)

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