LME MORNING - Renewed optimism boosts prices, Wednesday's EU summit main focus

By: Kathleen Retourne

London 24/10/2011 - Base metals jumped this morning on growing optimism in the future of the eurozone and a stronger euro that helped underpin prices but disappointing EU data saw prices come off intraday highs.

EU flash manufacturing PMI October came in worse than expected at 47.3 against a forecast 48.1. EU flash services PMI was also down at 47.2, below expectations for a reading of 48.6.

Supporting prices was the yesterday's EU summit held at which progress was made towards resolving the eurozone debt crisis, although further issues need to be agreed before a second meeting on October 26.

“No matter what progress is made at the October 26 summit, ECB support – and progress towards fiscal consolidation in the critical countries, above all Italy – is a crucial prerequisite for Europe to gradually exit its debt crisis and risk assets to remain on a recovery path,” Credit Suisse said.

Copper peaked at $7,450 earlier, up more than four percent on Friday’s close, but has since slipped below $7,400.

“This is no more than a relief rally,” a trader said. “Copper closed positively above the 200-day moving average at $7,095 on Friday night, holding onto an important level. It would need to break and close above $7,700 convincingly to gain traction or else further bouts of weakness are likely.”

 “The markets seem to be in the eye of the storm. They have sold off in recent months on the EU debt debacle; they now expect some constructive outcome from Wednesday’s EU summit and seem to be anticipating that by buying ahead of it,” FastMarkets analyst William Adams said.

Another supportive factor for the metals is the weaker dollar, with the pick-up in market sentiment and risk appetite seemingly weighing on the US currency. The euro, which hit an intraday high of 1.3953 against the dollar, was recently at 1.3851.


Copper warehouse stocks continue to be worn down, with levels dropping a net 3,525 tonnes to their lowest since April 8 at 444,275 tonnes. Cancelled warrants, however, saw a slight decline to 58,425 tonnes, a loss of 1,820 tonnes. Business at $7,370 per tonne was up $225 on the pre-weekend close.

Zinc inventories are now at their lowest since April 19, dropping 2,075 tonnes to 788,025 tonnes. Cancelled warrants fell 75 tonnes to 79,150 tonnes. At $1,865, three-month zinc was recently up $60. Volume this morning has been brisk - almost 7,000 lots have changed hands so far.

Aluminium stocks dropped 3,600 tonnes to 4,651,375 tonnes, while cancelled warrants at 223,500 tonnes were down 3,150 tonnes. The spreads are still showing tightness, with a backwardation of $1.00/3.75 on the Dec/Jan spreads. The metal recently traded at $2,176, up $51 on Friday’s close.

Nickel increased $225 to $19,055. Cancelled warrants were also up, increasing 5,588 tonnes to 4,998 tonnes. Inventories increased 906 tonnes to 87,726 tonnes.

Lead inventories saw a slight rise of 325 tonne to 388,275 tonnes. Cancelled warrants at 18,250 tonnes jumped 6,250 tonnes. Prices at $1,966 were up $51.

Tin at $21,950 was $190 higher. Stocks fell 515 tonnes to 16,985 tonnes, while cancelled warrants lost 230 tonnes to 2,895 tonnes.

Steel at $520/530 was unchanged, while cobalt was offered at $45,500.

(Editing by Mark Shaw)