LME MORNING - Base metals sell off, Spanish banking crisis in spotlight

By: Kathleen Retourne

London 30/05/2012 - Base metals were under pressure again on the LME on Wednesday morning from downbeat newsflow out of the eurozone

“For as long as the overriding news situation does not improve and fundamental data continue to be ignored, metals are likely to continue on their downward spiral,” Commerzbank said.

And although investors had looked to China for a lifeline, with speculation growing that the country will inject $300 billion into its economy, these hopes have been dashed when China reportedly said it has no such plans.

“More negativity today - the Chinese have quashed hopes on stimulus, while all eyes are on the euro,” a trader said.

The euro is still below 1.25 against the dollar, hitting a 23-month low at 1.243 and holding close to that level, as concerns about Spain’s economic health build.

The yield of Spanish 10-year bonds has climbed above 6.6 percent today, the highest since November last year. This has pushed the spread between Spanish and German bonds to a record high of more than 5.2 percentage points.

Investors are getting increasingly jittery regarding Spain - ratings agency Egan Jones yesterday downgraded Spain’s credit rating to B from BB with a negative outlook, the third downgrade in less than a month.

Shares in Spain’s fourth largest lender, Bankia, fell 15 percent today after the ECB rejected Madrid’s proposed 19 billion euros of aid as part of a recapitalisation plan – they fell more than 20 percent on Tuesday.

Meanwhile, Italian 10-year bonds are above six percent today, while German bond yields fell to an all-time low.

EU data disappointed. M3 money supply at 2.5 percent was down on the 3.4-percent forecast and private loans at 0.3 percent were also down on the expected 0.7 percent.

The EU is due to release its progress report on all 27 member nations at 12:00 BST.

“It now looks like concerns over Spain have taken centre stage, while Greece is in limbo and China’s stimulus seems less likely to be a big enough white knight for the global economy,” FastMarkets analyst William Adams said.


Copper at $7,561.50 was down $108.50 on the previous day’s close. Inventories rose a net 1,300 tonnes to 227,100 tonnes due to an increase in Busan. Cancelled warrants at 23,125 tonnes were up marginally, rising 200 tonnes.

Tightness in the nearby June/July spread has disappeared, with June/July now at $0.50 contango/$2.00 backwardation - it was at $22 back earlier this week.

Aluminium dipped precariously close to the psychologically important $2,000 level earlier at $2,005.25. It recently traded at $2,006, still down $10. Inventories declined 8,250 tonnes to 4,929,350 tonnes and cancelled warrants slipped 7,925 tonnes to 1,783,425 tonnes.

Nickel hit a fresh 2012 low at $16,555 and is now at $16,614, still down $36. Stocks rose 648 tonnes to 106,752 tonnes and cancelled warrants at 6,306 tonnes were down 102 tonnes.

Lead at $1,925 declined $23, while inventories fell 1,300 tonnes to 349,525 tonnes and cancelled warrants dropped to 65,900 tonnes. Sister metal zinc was down $24 at $1,890 although inventories fell 950 tonnes to 936,725 tonnes.

Tin dropped $230 to $19,970 after stocks rose 55 tonnes to 13,410 tonnes.

Steel was quoted at a soft $425/450 - stocks were unchanged at 28,145 tonnes. In the minor metals, cobalt traded at $30,000 - stocks climbed 20 tonnes due to warrantings in Singapore and cancelled warrants were down one tonne, taking total stocks to 355 tonnes. Molybdenum traded at $29,200.

(Editing by Mark Shaw)