LME MORNING - Metals track lower, optimism wanes again in thin trading

By: Kathleen Retourne

London 18/07/2012 - Base metals tracked lower in thin LME trading on Wednesday morning on disappointment at the lack of hints at further US quantitative easing (QE) in Fed chairman Ben Bernanke's speech on Tuesday.

Yesterday, Bernanke painted a gloomy picture of the US economy in his testimony before Congress but provided no clear indication that a third round of QE was on the cards. His testimony continues later today.

“Bernanke's less than inspiring words have left markets with dampened sentiment,” a trader said. “The economic outlook doesn't hold much for optimism in the coming weeks and so I would expect prices to range accordingly. Without the conviction of further QE, I see little to attract the upside.”

Meanwhile in the eurozone, concerns over Greece have re-emerged after reports that the country is at risk of further cash flow problems in August pending the delivery of the latest bailout package.

China, however, is providing a glimmer of hope. Although the country’s recent weak economic indicators reminded investors that the world's largest consumer of metals is facing its slowest growth in three years, this also means that further monetary stimulus could be imminent, boosting demand for metals

"We feel there is potential for optimism as the market mulls the likelihood of China moving from destocking mode to restocking in front of a pick-up in infrastructure spending in the second half," FastMarkets analyst Will Adams said.


Zinc at $1,863.50 was down $1.50 on the previous day’s close even though inventories broke above one million tonnes, rising a net 17,850 tonnes to 1,014,575 tonnes - the highest level since March 1995.

The bulk of the increase was in Johor where stocks rose 12,150 tonnes to 62,675 tonnes while there was an increase of 5,950 tonnes to 711,800 tonnes in New Orleans, of which 103,975 tonnes are cancelled warrants. Total cancelled warrants at 181,525 tonnes declined 4,925 tonnes.

Nickel at $16,030 was $80 lower, with stocks of 109,326 tonnes at their highest since June 27 last year after a 2,526-tonne rise to 6,024 tonnes in Vlissingen. Cancelled warrants climbed 570 tonnes to 9,480 tonnes - there was a 696-tonne rise in Johor to 1,428 tonnes.

Copper ticked up to $7,625, a rise of $30, but volumes are low - just 3,600 lots have changed hands on Select so far.

Cancelled warrants in Korea continue to rise - a further 4,800 tonnes were booked for removal in Busan. At 14,375 tonnes, this location is now responsible for the largest volume of cancelled warrants at 27.7 percent of the total. Total cancelled warrants increased 4,325 tonnes to 56,100 tonnes and total inventories climbed 675 tonnes to 253,575 tonnes.

Aluminium was steady at $1,903.25, trading just $0.75 lower. Stocks were up 2,025 tonnes to 4,808,500 tonnes, while cancelled warrants at 1,767,475 tonnes were up 8,050 tonnes.

Some tightness has crept into the forward spreads, with September/October currently at $1.75 contango - it was in an $11.75 contango just a month ago.

“Short rolls and warrant traders trying to borrow spreads to protect premium physical holdings are getting the blame, but we wonder whether this will lead to a broader market move,” RBC Capital Markets said. “The spec community are running short of aluminium at the moment, so the current tightness could well persist to the point of forcing some of the shorts out.”

In other metals, lead was unchanged at $1,893 after stocks were down 1,525 tonnes at 341,650 tonnes. Cancelled warrants rose Johor, up 5,225 tonnes to 12,150 tonnes, lifting total cancelled warrants to 49,650 tonnes.

Tin at $18,801 fell $94 even after stocks fell 40 tonnes to 11,915 tonnes and cancelled warrants climbed 110 tonnes to 4,200 tonnes, while steel at $405/420 was little changed.

In the minor metals, cobalt was indicated at $27,200/28,250 - stocks rose 10 tonnes to 356 tonnes - and molybdenum was offered at $27,100.

(Additional reporting by Perrine Faye, editing by Mark Shaw)