LME MORNING - Base metals lifted on China data, thin trading conditions expected

By: Kathleen Retourne

London 02/04/2012 - Base metals started the week and the second quarter on a brighter note following the release of better-than-expected PMI data out of China.

China's official PMI for March, published over the weekend, showed an encouraging rise to 53.1 compared with an expected 50.9 and 51 previously, calming investor worries that the recent slowdown of Chinese growth could heavily affect demand for metals in coming months.

But with the country on holiday until April 4 for the Ching Ming Festival and a shorter week in Europe and the US for Easter, volumes are light, with just more than 13,500 lots changing hands on Select so far. Trading conditions are likely to remain thin for the remainder of the week.

“Finding support from firm Asian equity markets and surprisingly rosy economic data from China, metal prices have made a positive start to the new week of trading,” Commerzbank said.

Meanwhile, although the HSBC PMI survey of smaller manufacturers in China came in at 48.3, showing that this segment of the economy has continued to struggle, this result was above the previous month's reading of 48.1.

Today, markets will focus on the US ISM Manufacturing Index, due at 1500 BST.

"The US ISM data today is likely to confirm economic stabilization once again," broker Credit Suisse said. "We think prices can stabilize and trade sideways this week."

Elsewhere, inventories on the Shanghai Futures Exchange have stopped increasing from near-10-year-high levels and the LME's stockpiles for most metals are falling, which could prove a positive development for the markets.

In wider markets, the euro stabilised higher to 1.3352 against the US dollar, while European equity markets were also in the plus column.

EU data came in as expected, with the unemployment rate at 10.8 percent, although this was still a new eurozone record. EU final manufacturing PMI was as forecast at 47.7.

On Friday, eurozone finance ministers agreed in principle to increase temporarily the size of their bailout pot to 800 billion euros to combat the spread of the sovereign debt crisis.


PRICES OFF HIGHS BUT MOST REMAIN POSITIVE

Aluminium at $2,128.50 per tonne was virtually unchanged from Friday's close, up just $2.50.

The LME's new minimum load-out rate of 3,000 tonnes per day for the largest warehouses came into effect today, which should be reflected in tomorrow’s stock data. Today, the two largest aluminium warehouses, Vlissingen and Detroit, only released 1,500 tonnes and 1,575 tonnes respectively.

Total aluminium stocks rose a net 13,575 tonnes to 5,076,925 tonnes after Vlissingen stocks climbed 16,025 tonnes to 1,041,550 tonnes. Total cancelled warrants at 1,660,000 tonnes were down 900 tonnes.

Copper at $8,487.75 was up $42.75 but off its session high of $8,530. Inventories were up 1,275 tonnes to 257,550 tonnes, with warranting in Busan, New Orleans and Singapore. Cancelled warrants at 83,400 tonnes fell 900 tonnes.

“Copper has rallied strongly in recent weeks, but this has come with a wrinkle in the form of a weakening physical market in China,” Michael Widmer of Bank of America-Merrill Lynch said.

"With mine supply increasing, we believe copper may not necessarily be the consensus long position in the coming two years (we still forecast a small deficit in 2012)," he added.

Nickel prices touched $18,200 this morning but then lost momentum and dropped back - they were recently at $17,998, still up $173. Stocks at 100,542 tonnes were up 660 tonnes, the highest since September 6, while cancelled warrants rose 906 tonnes to 5,652 tonnes.

Lead at $2,032.50 fell $7.50 - it was the only metal to fall despite news last week that Doe Run Co declared force majeure on metal deliveries from its primary lead smelter in Herculaneum, Missouri, after a March 20 fire in an electrical substation forced the temporary closure of the plant. Stocks at 376,800 tonnes were up 225 tonnes and cancelled warrants were at 21,575 tonnes.

Meanwhile, sister metal zinc at $2,004 was up $3. Stocks at 896,825 tonnes lost 550 tonnes but remain high. Cancelled warrants fell 550 tonnes to 11,200 tonnes.

Tin at $22,997 was $197 higher, just below its peak at $23,000. Inventories rose slightly, up 10 tonnes at 13,090 tonnes, while cancelled warrants at 1,080 tonnes were up 15 tonnes.

Steel was offered at $520. Inventories fell 2,015 tonnes to 41,405 tonnes, the weakest since August 2. In the minor metals, cobalt was indicated at $30,500/32,500, while molybdenum was neglected.


(Additional reporting by Clara Denina, editing by Mark Shaw) 

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