LME MORNING - Base metals drop as euro softens against dollar, bearish tone dominates

By: Kathleen Retourne

London 13/10/2011 - Base metal traded lower during Thursday morning LME trading, following the euro lower as it softened to 1.3725 against the dollar from yesterday's three-week high.

"I don't see prices getting too high. Rallies are there to be sold into,” a trader said. "The euro had been limping along this morning and base metals have immediately come off with it."

“We’re stuck in range with a bear basis and will remain that way until there is an uptick in economic growth," he added. "This is looking negligible as Europe and the US are seeing a drop in demand and, as we are seeing, relying on emerging makers is not the answer."

The metals industry had been hoping China would start to restock after the Golden Week holiday last week and had estimated the country’s copper inventories at the end of 2010 to be around 1-1.5 million tonnes but these were actually at 1.9 million tonnes, according to data released overnight.

“We keep hearing that there is a harsher landing than first thought on terms of Chinese buying and that is one of the reasons base metal price have been softer of late.” the trader said. "Chinese hunger seems to be satisfied in the short term. There may be a nibble here and there but I don't see any huge purchases."

But copper imports into China in September provided some support to prices. China imported 380,526 tonnes of copper during this month, the highest monthly total this year and an increase of 11.8 percent from August, according to data from China’s General Administration of Customs.

"This increase in imports seems to have mainly been driven by the fall in copper prices of more than 30 percent, which attracted traders back into the market, with some orders used to restock after the decline in domestic stockpiles," FastMarkets analyst Jono Remington-Hobbs said.

"We think this import data is mildly bullish for the copper market but again it must be interpreted in the context of the larger macroeconomic picture," he added.


PRICES DROP ACROSS THE COMPLEX

Copper slipped back under the $7,400 to trade at $7,385, a loss of $144 or around two percent on yesterday’s close.

Warehouse stocks were down a net 3,900 tonnes at 453,100 tonnes, the lowest since April 20. Cancelled warrants were up 6,175 tonnes to 51,850 tonnes, due to Busan cancelling 17,625 tonnes, Gwangyang 18,650 tonnes and Singapore 12,925 tonnes.

Aluminium prices fell $31 to $2,218. The metal’s February/March spread has come under scrutiny, as the spread shows a $2 backwardation - and for this to happen so early is unusual. The tightness has been attributed to a European bank purchasing large amounts to circumvent long warehouse queues in Detroit.

“One would expect this [backwardation] to fizzle out closer to prompt,” the trader said. "It might upset a few hedges on the way. It is unusual that it is tight so early though."

The December/January spread is also becoming tighter, trading at $7 contango this morning. Should this fall below $5 contango, it could prompt some selling, an aluminium trader said.

Stocks dropped 4,025 tonnes to 4,551,675 tonnes, while cancelled warrants increased 400 tonnes to 232,500 tonnes.

Lead was among the worst hit this morning, dropping $51 or around 2.5 percent to $2,019. Inventories continued to rise, up another 1,475 tonnes to a fresh all-time high of 388,325 tonnes. But cancelled warrants were also up at 7,225 tonnes, an increase of 525 tonnes.

Zinc dropped $20 to $1,925 although stocks continue to fall, dropping 3,675 tonnes to 798,875 tonnes - the lowest since April 19. Cancelled warrants fell 1,100 tonnes to 67,050 tonnes.

Nickel stocks fell 762 tonnes to 91,020 tonnes while cancelled warrants increased 948 tonnes to 6,612 tonnes. At $18,834, the metal was recently down $246.

Tin inventories rose 125 tonnes to 19,035 tonnes but cancelled warrants were also up, rising 110 tonnes to 3,394 tonnes. Tin fell $600 to $22,400.

Steel was quoted at $540/545 and, in the minor metals, cobalt was quoted at 30,000/43,000 and molybdenum was offered at $30,300


(Editing by Mark Shaw)

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