LME MORNING - Metals struggle after covering slows, weak European PMIs seen

By: Martin Hayes

London 24/07/2012 - Base metals moved back from early highs during Tuesday LME premarket trading when the initial impetus from covering slowed and an uncertain complex settled into a more sideways trading pattern.

Tin was swiped to a 10-month low while the complex was generally attempting to consolidate after Monday's sharp sell-off. But a series of soft European PMIs, which offset an encouraging Chinese figure, will keep the emphasis to the downside, with Greece's bailout talks also in focus today.

"We would suggest that market movements continue to allude more to short-term money flows," LME RDM Sucden said.

In a string of soft figures, the July flash manufacturing PMI for France was 43.6 against a forecast 45.6, Germany's was 43.3 versus a predicted 45.3, while the eurozone outturn was 44.1, also below an expected 45.3

 Earlier this morning, China's July HSBC flash manufacturing PMI came in at 49.5 against June's deeper contraction of 48.2.

Wider macro-economics and fundamentals remain constrained, traders said. And although the euro was holding around 1.2115 against the dollar and above yesterday's 25-month lows, the eurozone crisis is likely to flare up again as it did on Monday.

"One could easily feel that bears are gaining solid traction, and prices could potentially drop a little more. Stand back from the freight train as they say," broker RBC said.

Today, the attention will be on Athens, where Greece's creditors - the European Commission, European Central Bank and the International Monetary Fund - are renegotiating bailout payments.

Also, rising Spanish borrowing costs - bond yields have risen to euro-era highs of some 7.5 percent - have triggered fears that the eurozone's fourth-largest economy will be forced to seek a bailout. Also, Moody's Investors Service changing its ratings outlook to negative for AAA-rated Germany, the Netherlands and Luxembourg amid Europe's ongoing debt crisis.

"At present e expect the metals to remain within the confines of recent ranges; however, we still see a greater threat of downside pressure over the short-to-medium term WHILE indicators continue to point towards slowing macroeconomic activity and an inability by EU leaders to halt the spiral of debt contagion," James Moore of FastMarkets said.


Copper settled back from early highs near $7,500 to trade recently at $7,413 per tonne, still up $12 from Monday when prices hit $7,360, their lowest for some three weeks. Today, Warehouse stocks declined a net 1,100 tonnes to 251,450 tonnes.

Prices, although under pressure from overall weakness, remain comfortably above the cost of production, unlike the rest of the metals suite. In the tight spreads, August/three months traded at $3.00 backwardation, while September/three months business was seen at $7.00 premium.

"Copper is generally gyrating around the $7,500 mark and has done since the last week of May," a trader said.

Tin sped lower after a breach of $18,000 triggered some sell-stops, highlighting general vulnerability to technical swings. Prices hit $17,711, the lowest since last September, before holding recently at $17,900, down $450. Inventories were unchanged at 11,720 tonnes.

In other metals, aluminium eased $3 to $1,875, while inventories resumed their downtrend - falling 5,100 tonnes to 4,845,400 tonnes. On Monday stocks had surged to one-month highs.

Nickel continued to struggle, coming to within $20 of Monday's three-year lows of $15,450 at one stage. Recent business was at $15,537, a $63 loss. There was a modest 42-tonne decline in stocks to 110,580 tonnes.

Zinc fell $6 to $1,808, while there was a 3,900-tonne stock decline to 1,007,300 tonnes. Lead traded at $1,859, down just $1, with stocks falling 1,500 tonnes to 334,850 tonnes.

Steel billet was stable again at $410/420, while in the minors both cobalt and molybdenum held at $27,000/28,200 and $25,550/27,350 respectively.

(Editing by Mark Shaw)