LME MORNING - Base metals pause on profit-taking ahead of stress test result

London, 23 July 2010 - Base metals took a breather on Friday morning from the week's stellar run-up as profits were booked ahead of the European stress test results this afternoon, while a soft dollar and improving technical picture provided price support for the week ahead.

All major contracts built on Thursday's advance, moving to new one- and two- month highs - copper towards $7,100 and aluminium near $2,100. Lead and nickel were mounting a challenge of $2,000 and nickel was well above the $20,500 mark.

Metals had raced higher early in the morning after German business sentiment beat expectations, adding to a string of brightening reports for the region this week, which sent the euro to a three-day high against the dollar and close to two-month peaks.

Alongside positive expectations for European bank stress tests, confidence in the EU’s ability to apply austerity measures without impeding growth has increased and, with it, so has appetite for risky assets such as metals.

Since then, however, metals have fallen back. Having cracked significant chart levels this week, copper has been the catalyst for the week's bull run but LME-bonded warehouses saw a rare increase today, which may also have dented sentiment.

More broadly, however, profit-taking was evident across the financial sector.

"We will probably see a little bit of profit-taking... we have seen a little bit already," one London trader said. "Technically, [copper] looks very sexy but I don't trust it myself."

The trader at the ring-dealing LME member firm said he had not seen the order flow to warrant copper's rally this week.

"Something had to happen because no-one makes money [over the summer]," he said "A few boys went for it and they sucked a lot of people in, I guess - a lot of momentum funds - but what has changed fundamentally? Nothing."

Global stock markets were up on Friday after the release of data showing signs of growth in Europe and US stocks rallied to a two-week high on better-than-expected results from industry giants such as Caterpillar and Microsoft.

In Europe, stocks were mixed to higher - strong gains in Germany were met with a flat performance from the FTSE 100 and small half-percentage-point gain in France.

Swedish wireless equipment maker LM Ericsson AB’s net profit also more than doubled in the second quarter, it said today. McDonalds and Honeywell International are also due to release their latest set of quarterly results later.

The upbeat mood comes amid warnings from Federal Reserve chairman Ben Bernanke, however - he told Congress on Wednesday that the US economy remains fragile and that the best scenario is only slow growth and relatively high unemployment.

Attention now turns to the European bank stress test report, with results on 91 banks accounting for 65 percent of the European banking system scheduled for release after the European close.

Date including home sales for June, consumer confidence, durable orders and advance US GDP are due next week.

STOCKS RISE INTO BUSAN

LME-bonded warehouses registered their first net inflow of metal in more than a month today, which briefly punctured copper's advance, although weekly Shanghai inventories resumed their usual decline.

Copper, which had scaled to a two-month peak of $7,090, fell back to $7,055 after LME data showed inventories rose a net 3,125 tonnes, with a 4,000-tonne build into Busan. LME copper stocks had previously declined for 25 sessions in a row.

Deliverable copper stocks on the Shanghai Futures Exchange resumed their downward trend in the week to July 23, dropping 5.25 percent or 6,316 tonnes after last week’s modest increase.

But with tightness in physical metals markets, the decline is seen as a one-off rather than the start of a new trend, even though stocks historically rise over the summer months.

Having recovered back to the $7,080 level and above also its 100-day moving average around $7,070 per tonne, copper turned back and was last at $7,047, still up $37 on the day. Volumes were exceptionally heavy - more than 7,300 lots have changed hands on Select.

A close above the 100- and 200-DMAs today would suggest $7,000 could provide a floor into next week.

Aluminium inventories declined a net 5,975 tonnes. Three-month prices reached a new best since May 14 at $2,070 before narrowing the advance to $3 at $2,047.

Nickel jumped to $20,631, up $381 to its most expensive since June 1 when it hit $20,950 - now its next level of resistance. Stocks fell for the 33rd session in a row today, down 396 tonnes to their lowest since early September 2009.

LME zinc climbed $13.50 to $1,962, surpassing Thursday's peak to touch its highest since May 17 before settling at $1,941.25, down $7.25. It has climbed 9.2 percent this week.

Stockpiles of lead dwindled to their lowest since May 10, falling 975 tonnes, reflecting patches of reviving end-user demand in Europe as well as metal moving into private storage because of cheaper rents and profitable contangos. Lead climbed to $1,970, its most expensive since May 13.

Tin stocks saw a rare 85-tonne build, although its effect was muted by a 31.4 percent rise in cancelled warrants to 1,340 tonnes. Tin touched a new three-month high at $18,800, before settling at $18,750, still up $200 from Thursday, having climbed 5.9 percent this week.

Med billet traded at $470, beating Thursday's two-month high of $460 amid record turnover this week. Inventories here were unchanged today.

Cobalt stocks grew by six tonnes to 192 tonnes. Business was indicated at $37,050/42,000 from $37,050/43,000 while molybdenum was offered at $33,000, unchanged from the close.

(Editing by Mark Shaw)

RELATED TOPICS