LME MORNING - Copper races above $9,700/t on dollar weakness

By: Barbara Stcherbatcheff

London 18/01/2011 - Copper led the rest of the base metals higher on Tuesday, with a firmer euro and encouraging macroeconomic signals boosting investor appetite for risk.

Three-month LME copper traded as high as $9,733.25 per tonne, while nickel rose to an eight-month high at $26,425 on buoyant demand forecasts. LME nickel has climbed 6.5 percent this year, leading advances among the six most active metals on the exchange.

For some investors, the appeal of holding industrial metals as a long-term investment is now outpacing that of precious metals.  

“In a world where the economies are growing and per capita incomes are rising we would prefer owning the ‘stuff’ of economic activity… copper; aluminium; palladium et al… and the ‘stuff’ of everyday, better life (wheat, cotton, sugar, meat) than we would of precious metals,” Dennis Gartman, author of the Gartman Letter, said.

But others predict that metals will sell-off in the near term. “We expect LME metals prices to fall over the next few weeks as consumers hold off purchases,” Fairfax analyst John Meyer said.

The dollar fell against a global basket of currencies and was trading around 1.34 against the euro, after a meeting of EU finance ministers to discuss the eurozone’s $1 trillion bailout fund.

The US currency also softened against the pound after UK inflation jumped to an eight-month high of 3.7 percent in December, its highest since May and the 10th consecutive month that it has been above the government’s upper limit of two percent.

The Bank of England held the key interest rate at a record low of 0.5 percent for the 23rd successive month last week - pressure is now mounting for a rate rise to curb inflation.

Meanwhile, in Germany, ZEW investor confidence rose for a third month to 25.4 in January, surpassing the consensus expectation of 17.3.

The data stream is light in the US on Tuesday, with only Empire Manufacturing and long-term purchases data due for release this afternoon.


CHINESE DESTOCKING

As Chinese authorities look to keep a tight rein over inflation and money supply, some analysts expect China to buy metals after the Lunar New Year. But others believe this may be delayed while the government decides what it wants to do about the large piles of metal already in China.

“There is evidence that suggests a significant amount of metal is sitting around in bonded warehouses. You have the potential for Chinese destocking - you might see the metal migrating out of China back to the LME,” Leon Westgate, analyst at Standard Bank, said.

“Things are relatively well-stocked looking at copper premiums. Shanghai premiums are $20-40 thereabouts much lower than they were,” he added.

Copper was up $85 at $9,715. News that Chile’s Collahuasi mine will resume shipments helped soothe investor anxieties about supply - the mine intends to ship 10,000 tonnes of copper concentrate via Arica port in the north of the country after a four weeks of force majeure on shipments, Reuters reported.

Aluminium gained $30 to $2,465 per tonne, while nickel traded at $26,388 per tonne, up $553.  

According to the International Nickel Study Group, the nickel market is still oversupplied, with global nickel production in November rising by 9.6 percent from the same month of the previous year to 125,000 tonnes, while demand picked up by 12 percent to 118,200 tonnes.

“The market is underestimating supply and this is dampening the fundamental situation in the case of nickel.  In our opinion, much positive news should be already priced in. We therefore see no further upside price potential from a fundamental perspective,” Commerzbank said.

Zinc rose $10 to $2,465 while lead traded at $2,657.50, up $12.50. Zinc prices are likely to fall over the next few weeks, according to Société Générale, as the metal loses support from commodity index rebalancing.  

Tin traded at $27,050 after closing indicated at $26,925/26,950 in the previous session.

Steel billet was indicated wider at $565/590, while cobalt was indicated at $38,800/39,132 and molybdenum was indicated at $36,800/40,000.


(Editing by Mark Shaw)

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