LME MORNING - Base metals slip, profit-taking expected ahead of weekend

By: Kathleen Retourne

London 28/10/2011 - Base metals ran out of steam during premarket trading on Friday, with the rallies evident throughout the complex all week drawing to a close.

Underlying sentiment remains upbeat in the wake of the much-anticipated EU summit meeting in mid-week, where an agreement to tackle the eurozone's debt crisis was reached. Also, US economic data - Thursday's GDP figures in particular - were seen as positive.

Copper, earlier at its highest for five weeks, was recently some $200 below its $8,280 peak, but business flows were again active - heavy investment-led volume has been seen this week.

“While the price of copper on the LME is heading for its biggest weekly gain since 1986, the best weekly performance for over five years is being registered in Shanghai,” Commerzbank said.

“Besides a weak US dollar, very firm equity markets across the globe are lending impetus to metal prices. Moreover, a so-called 'short squeeze' has probably taken place, meaning that investors who had bet on falling prices have had to close their positions swiftly to avoid even greater losses,” it added.

At the EU summit, European leaders decided upon a three-pronged attack: banks will write off 50 percent of Greek debt, a bailout fund of one trillion euros will be implemented and vulnerable banks will be recapitalised.

Attention has since turned to China in the hope that the country will contribute to the eurozone bailout fund.

Klaus Regling, chief of the European Financial Stability Facility (EFSF), is currently in Beijing to ask China for its support. It is thought that China may contribute around $100 billion to the fund, although Regling said there would be no conclusion during his visit. Still, bonds issued by the fund will continue to be purchased by the country.

US data releases scheduled for Friday include the October Revised UoM Consumer Sentiment index, the third-quarter Employment Cost Index, the September Core PCE Price Index and September figures on personal spending and personal income.

Meanwhile, the metals may well see some profit-taking ahead of the weekend, given the extent of the advances in recent days.


COPPER AND ALUMINIUM TIGHTNESS CONTINUES

Copper is still showing tightness, with the Jan/Feb spread showing a backwardation of $2.00/3.00.

“All the recent buying is going back within the spread. It is showing Dec and Jan buying and profit-taking for dates within,” a trader said.

Three-month metal recently traded at $8,078 per tonne on Select, dropping $62 on Thursday’s close. Prices rose six percent yesterday and have climbed nearly $1,600 or 24 percent over the last week so some consolidation is likely.

The red metal's warehouse stocks fell a further net 2,300 tonnes to the lowest total since March 21 at 432,375 tonnes. Cancelled warrants dropped 6,375 tonnes to 54,900 tonnes.

Aluminium Dec/Jan has been showing backwardation for some time - it is currently at $3.00/4.00 back. This tightness is spreading into Feb/March, which is already at $0.50/3.00 back. In contrast 2011 Nov/Dec is at $14.00/13.50 contango.

“This spread tightness (in Dec/Jan) is likely to continue in the short term, but we have the GSCI rolls coming and we wouldn't exactly say the market is looking to be tight over year end,” RBC said

“We would have thought that cash will be at premium for year end this year and that full finance contangos would be needed to encourage warrant holders to retain material. Possibly the aggressors that have bid the spreads in recently are hoping to get their hands on some material that has been locked away,” it added.

Aluminium dipped to $2,250, a loss of $5 - the market touched a five-week peak of $2,295 on Thursday.

Zinc rose as high as $1,976 in Asia, its best since October 12, before it too slipped back to $1,940, a $5 decline. Stocks remain at six-month lows - these dropped another 1,525 tonnes to 793,350 tonnes. Cancelled warrants were up 475 tonnes at 80,400 tonnes.  

Nickel at $19,843 was down $58. Inventories dropped 1,086 tonnes to 87,042 tonnes, while cancelled warrants at 5,928 tonnes were down 780 tonnes.

Lead stocks were down 475 tonnes to 387,900 tonnes and cancelled warrants slipped 275 tonnes to 20,525 tonnes. Business at $2,020 was down $19.

Tin producers in Indonesia, reportedly unsatisfied with the prices below $25,000, may impose export quotas on a monthly basis to push prices upwards. The metal traded recently at $22,000, down $50. Stocks fell 40 tonnes to 16,550 and cancelled warrants at 2,365 tonnes were up 305 tonnes.   

Steel at $525/545 was down $1 while cobalt was indicated at $29,300/32,600 and molybdenum was neglected.


(Additional reporting Martin Hayes, editing by Mark Shaw)

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