LME MORNING - Base metals edge higher but Chinese growth concerns cap rises

By: Kathleen Retourne

London 31/07/2013 - Base metals were marginally higher on Wednesday morning, coming off the previous session’s lows.

Still, sentiment remains cautious - market participants have became increasingly concerned about economic growth amid disappointing data releases.  

“Largely negative data out of Europe and the Far East has taken its toll on prices, just as they looked like they would make a break to the upside,” a trader said. “Poor PMI and retail numbers [yesterday] dampened sentiment and metals are retesting the lower end of current ranges, so look for support to hold."

A data-heavy day could lead to some choppiness. So far, eurozone data has been mixed - German retail sales and French consumer spending disappointed at -1.5 percent and -0.8 percent respectively but the German unemployment change at -7,000 was better than the expected -1,000 and the Italian monthly unemployment rate surprising slipped to 12.1 percent.

The eurozone flash CPI estimate was as expected at 1.6 percent, while the unemployment rate beat expectations at 12.1 percent. Finally, Italian preliminary CPI was negative at 0.0 percent.

The mood is uncertain while this day's economic events and data starts to unfold - the FOMC meeting, which concludes today, will be supplemented by jobs numbers for the US and Europe in focus, as well as potentially crucial Chinese manufacturing data.

“Reports that economic growth fell short of the targets set in 17 of 30 provinces and provincial-level cities in China in the first half of the year also contributed to increased unrest among market players,” Commerzbank said.

“What appears to be alarming news at first glance, however, can be relativized somewhat by drawing a comparison with the previous year. After all, 14 provinces failed to meet their targets in the first half of 2012 too,” it added.

But there is a greater risk that the nationwide growth target of 7.5 percent for the year as a whole will not be achieved, is said, which there is evidence that the Chinese government will tolerate a slower pace of economic growth.

Also out today is the US second-quarter advance GDP number before China's July manufacturing PMI, which is forecast to come in at 49.8 after 50.1 in June - a number below 50 indicates contraction.


COPPER VOLUME STRONG

Copper at $6,798 per tonne was up $69 on the previous close, with a substantial 12,400 lots changing hands on Select by 10:30 BST. Stocks edged a net 750 tonnes lower to 612,800 tonnes and cancelled warrants at 314,775 tonnes were down 50 tonnes.

"The underlying industry fundamentals look better with falling LME and Shanghai stockpiles implying demand is picking up," ANZ said. "This market is heavily sold, so a better [Chinese manufacturing PMI] could trigger a short squeeze and higher prices - but this is not what we are expecting."

Aluminium was up $7 at $1,783, with stocks rising 4,600 tonnes to 5,478,525 tonnes and cancelled warrants slipping 6,200 tonnes to 2,137,550 tonnes. Nickel rose $229 to $13,689 although stocks climbed to a fresh all-time high of 203,028 tonnes due to a 2,676-tonne arrival in Johor.

Lead at $2,042.25 was up $16.25, with stocks unchanged. Zinc was $8.25 higher at $1,837.50 after stocks and cancelled warrants both fell 4,100 tonnes to 1,049,475 tonnes and 619,450 tonnes respectively.

Tin at $19,780 was up $5. Inventories declined 155 tonnes and cancelled warrants rose 75 tonnes to 5,020 tonnes. Steel was indicated at $120/198 following a 2,015-tonne drawdown in stocks to 52,130 tonnes. Cancelled warrants declined 1,820 tonnes to 37,180 tonnes.

In the minor metals, cobalt was indicated at $26,000/27,000 while molybdenum was neglected. Both metals saw no change in inventories.


(Additional reporting by Eddie van der Walt, editing by Mark Shaw)

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