LME MORNING - Base metals race higher, set fresh multi-month peaks on Fed stimulus announcement

By: Eddie van der Walt

London 14/09/2012 - Base metals set new multi-month highs in brisk trade during the LME premarket on Friday following the announcement of a long awaited fresh round of quantitative easing by the Federal Reserve in Washington on Thursday evening.

All metals rose significantly to set their best levels since the start of summer, with turnovers rising markedly.

The third round of easing was announced following a meeting of the Federal Open Market Committee (FOMC) in Washington, with the Fed promising to inject $40 billion into the economy each month until there was an "ongoing, sustained improvement in the job market".

"The size is a bit lighter than expectations but the caveat of continuing it until employment numbers get better is likely to be viewed favourably," RBC commented in a note.

The Fed will also continue its 'Operation Twist' programme - which extends the maturity of securities - and will said it anticipates low interest rates through to mid 2015, extending its forecast from 2014 previously.

"On balance we are not surprised the markets have reacted the way they have and there may well be further gains for the metals in the days ahead," FastMarkets analyst William Adams said, but added: "The overall message is that the outlook is grim and we are unsure whether more QE will lead to real demand for industrial metals."

However, in its morning view, Fairfax predicted that copper would climb as high as $8,500 per tonne.

"The Fed is moving decisively to end the threat to the US economy and this should stimulate new demand," the Fairfax note read. "The US dollar looks like a necessary sacrifice in the short term to restore growth into the economy."

The dollar index was last at 79.11, down 0.14, with the euro gaining 0.0044 to $1.3039, not far off four-month highs. Oil, which also benefits from anti-US protests sweeping across the Middle-East, was last at $117.53, up $1.95.

In data today, European unemployment remained unchanged, quarter-on-quarter, with the consumer prices index for the continent also unchanged at 2.6 percent. Later, the US will release its core CPI, core retail sales and the preliminary University of Michigan consumer sentiment figures.

CONTINUED BACKWARDATION SEES ALUMINIUM STOCKS JUMP TO THREE-MONTH HIGH

Copper climbed as high as $8,408, a four-month high. It was last at $8,391.75, up $316.75 on the close - a gain of nearly four percent. Warehouse stocks increased for the third day in a row, with a net inflow of 850 tonnes - Busan had an increase of 1,400, while St Louis saw a decrease of 325 tonnes. Cancelled warrants dipped by 300 to 39,475 tonnes.

Aluminium, meanwhile, set a five-month high at $2,162 and it was last still pushing higher, taking it up $60 on the close, a gain of almost three percent. With the 'third Wednesday' prompt date due on Monday, the metal's Sept/Oct backwardation has widened to $19.

Stocks again saw a large increase due to the backwardation, with a net 37,650 tonnes entering warehouses - with Detroit receiving 28,675 and Vlissingen 8,975. Total material now stands at 5,008,975 tonnes, the highest since May 3.

Zinc stocks continued their unbroken one-month long decrease, with the total falling by 2,950 tonnes to 924,200 tonnes. New Orleans and Port Klang, Malaysia each saw 1,500 leave. The metal soared as high as $2,107.75, the first time since March 16. It was last at $2,104.50, up $68.50 or about three-and-a-half percent.

Nickel also climbed to a four-month high at $17,498, it was last at $17,490 - up $740. Stocks of the metal decreased by 6 tonnes to 120,876. Cancelled warrants were 678 lower at 13,218.

Lead climbed as high as $2,255.75. It was last at $2,254, up $96.50. Inventories decreased by 2,625 to 293,200 tonnes, with cancelled warrants increasing by 3,925 to 109,150. Tin stocks climbed by 185 to 11,875, with cancelled warrants unchanged at 7,135. It was last trading at $21,487, up $1,137 or more than five percent.

Steel billet was last quoted at $310/348, with minor metals cobalt and molybdenum neglected.

(Editing by Martin Hayes)

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