LME MORNING - Base metals take breather, fund buying to provide direction

By: Kathleen Retourne

London 17/09/2012 - The base metal rally paused on Monday when the euphoria that followed last week's QE3 announcement waned. The market tracked currency movements - the euro dropped back from Friday’s four-month highs to around 1.3099 against the dollar.

“Markets are taking a bit of a breather after the stratospheric move on Friday,” a trader said. “The move upwards looked to be slightly overcooked and markets will be looking for more fund buying.”

“The weak dollar is helping, but copper is off highs now and all the metals are screaming for a correction,” he added. "They are all over-bought and if we do not see any fresh fund buying by the close today, we might see some profit taking."

The metals rallied sharply at the end of last week after the Federal Open Market Committee (FOMC) announced the third round of easing (QE3) to re-invigorate the faltering global economy, making it the third major central bank, after the People's Bank of China and the European Central Bank, to do so in a week.

The Fed said it will inject $40 billion into the economy each month until there was an "ongoing, sustained improvement in the job market".

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

This week is fairly heavy for data, with Wednesday seeing the number of new building permits and existing home sales in the US and Thursday the HSBC Flash Manufacturing PMI for China, as well as the Philly Fed manufacturing index.

Data out of the EU this morning largely disappointed. The EU trade balance at 7.9 billion euros was below the forecast 10.2 bullion euros and the previous figure of 9.3 billion euros (revised downwards from 10.5 billion euros previously).

The EU current account for July at 9.7 billion euros undershot the forecast 10.9 billion euros and was below the June reading of 14.3 billion euros, although this was revised from 12.7 billion euros previously.

But the Italian trade balance for July came in at 4.49 billion euros, above a predicted 1.97 billion euros and June's 2.52 billion euros.


Nickel set a fresh four-and-a-half-month high at $17,975 this morning and was last at $17,941 per tonne, up $166 on the pre-weekend close. Stocks fell 726 tonnes, with 300 tonnes leaving Johor and 426 tonnes leaving Rotterdam. Cancelled warrants dipped 726 tonnes to 12,492 tonnes.

“Nickel has been poor relation to other metals and didn’t move as high as the rest of the market last week. Today it has seen an uptick but that is more technical movements than anything else,” the trader said.

Copper was last at $8,336, down $44 amid slight profit taking, despite stocks dropping 475 tonnes to 216,700 tonnes, with 600 tonnes leaving St Louis but with Rotterdam taking in 375 tonnes. Cancelled warrants rose 6,275 tonnes to 45,750 tonnes.

Aluminium was last at $2,171.50, down $23.50. Inventories increased for the third session in a row, up 8,750 tonnes at 5,017,725 tonnes, with Johor stocks up 8,925 tonnes and Rotterdam up 3,000 tonnes, while 3,000 tonnes left Vlissingen. Cancelled warrants were down 9,825 tonnes at 1,571,625 tonnes.

The backwardation in aluminium’s September/October spread, which turns prompt on September 19, will be watched closely in the rings today. The spread traded in an $11-22 backwardated range last week.

Lead at $2,250.75 was down $14.25 - stocks and cancelled warrants both fell 2,300 tonnes to 290,900 tonnes and 106,850 tonnes respectively. Sister metal zinc was $20.25 lower at $2,095.75, with inventories at 921,150 tonnes at their weakest since April 30.

Tin dropped $175 to $21,498 after stocks increased 80 tonnes to 11,955 and cancelled warrants were unchanged at 2,300 tonnes.

“Tin appears to be the biggest loser this morning, its price having fallen for a time by around three percent,” Commerzbank said.

Steel was quoted at a soft $310/355, with stocks and cancelled warrants unchanged. In the minor metals, cobalt was offered at $29,950 and molybdenum was neglected.

(Additional reporting by Eddie van der Walt, editing by Mark Shaw)