LME MORNING - Base metals prices fall to multi-week lows, fund jitters derail mood

By: Martin Hayes

London 21/02/2013 - Base metals fell heavily during active Thursday LME premarket trading, setting fresh multi-week lows across the board and matching widespread financial marketplace losses, traders said.

Technically motivated investment sales and liquidation, negative European PMI releases and a weak euro weighed on sentiment; further declines are seen in the short term.

"There are two main factors in play most of the time - China and funds. The Chinese are not in the market so the funds, the CTAs [and] the short-term macro types are in the driving seat for now," a trader said.

As well, rising warehouse inventories in copper, aluminium and nickel did little to offset the growing view that the end-January/early-February rally was overcooked.

"On balance we would not be surprised if the base metals pull back further," William Adams of FastMarkets said.

So far this morning copper and tin have fallen to seven-week lows, nickel has dropped to a two-and-a-half-month low and aluminium, zinc and lead are around levels seen in late-January.

Equities were easing as well, while the dollar gained in a flight to quality, adding further downside weight to the dollar-denominated metals. The euro hit 1.3174 against the US currency, its lowest since January 10, and was trading recently around 1.3190.

Losses accelerated towards the end of the previous session as prices eased below key technical levels, triggering investment-led liquidation in copper. This took place amid talk of a hedge fund liquidating big positions in commodities

"Rising copper inventories, a lack of buying by the Chinese, technical selling, and a commodity fund blowing up were all blamed for the sell-off," broker RBC noted.

Also, concerns that the US Federal Reserve could prematurely wind down its bond-buying programme were sparked by the publication of the minutes of the last FOMC meeting.

The jumpy mood and volatile price movements are likely to be further exacerbated by the impact of a busy day of economic releases. So far all the February European PMIs have come in below expectations - the French at 43.6 against a forecast 43.9, the German at 50.1 compared with 50.4 and the eurozone at 47.8 against 48.4.

US releases this afternoon include the January CPI and CB Leading Index, January existing homes sales figures, the February Flash Manufacturing PMI, the Philly Fed Manufacturing Index, fourth-quarter mortgage delinquencies and weekly unemployment claims.


COPPER FALLS UNDER $7,900, INVENTORIES BUILDING STEADILY

Copper dived to $7,855.75 per tonne, its lowest since December 24 and a $104.25 loss from the Wednesday kerb close. Since midday on Wednesday, the market has fallen nearly three percent from near $8,100.

Warehouse inventories jumped a net 7,300 tonnes to 420,250 tonnes, the highest for three months and due to inflows into Johor and New Orleans. Stocks have doubled since recording a two-year low of 210,725 tonnes on October 16 last year - and further increases are expected.

Aluminium, which failed to hold onto the $2,100 level, touched $2,068.50, its softest since January 30, before trading recently at $2,071, a $32 loss. Inventories climbed 6,075 tonnes to a two-week high of 5,158,025 tonnes, with big warrantings seen in Detroit and Vlissingen.

Nickel hit $16,630, the cheapest since November 27 and down from a previous $17,170. Inventories rose a bulky 1,092 tonnes to 154,398 tonnes, the highest since April 2010, with 1,236 tonnes put on warrant in Antwerp.

In others, zinc hit $2,096, the weakest since January 29 and a $37 loss. Stocks were down 3,600 tonnes at 1,189,650 tonnes. Lead traded at $2,300, its lowest since January 22, and then settled at $2,307, a $47 decline. Inventories were down 75 tonnes at 288,500 tonnes.

Tin at $23,050 was at a level last seen on December 21 and a $675 decline. Stocks climbed 190 tonnes to a two-week high of 13,515 tonnes.

Steel was quoted at $300/330 and cobalt at $25,000/26,450, while molybdenum was neglected.


(Editing by Mark Shaw)

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