LME MORNING - Metals weak as China data dulls sentiment further, copper slides more than 3 pct to one-week low

By: Martin Hayes

London 18/10/2011 - Base metals extended the declines of the previous session during Tuesday LME premarket trading, as hopes that the eurozone debt crisis will be tackled swiftly have faded, while China's third-quarter GDP data released today came in below par.

"It is a 'two steps forward, three steps back' sort of market now that we are seeing. The rallies are there to be sold for now," a trader said.

The euro was also weighing on the mood - it softened to some 1.3660 against the dollar from 1.3788 late on Monday, having set a one-month high of 1.3913 at one stage in the previous session. Equity markets also came under pressure.

Copper, which had hit a three-week peak of $7,660 per tonne on Monday, sped lower to a one-week low at its softest, down some 3.3 percent after breaking below $7,300.

"We would not be surprised by further consolidation and some tests of support but there may still be room for some optimism ahead of the G20 meetings this weekend," William Adams of FastMarkets said.

But the mood has turned fragile now, following a dent in hopes that the eurozone debt crisis will be tackled effectively and speedily. Steffen Seibert, German chancellor Angela Merkel's chief spokesman, said at a briefing on Monday that the search for an end to the crisis “surely extends well into next year”.

In data from Asia, China's third-quarter GDP came in below expectations, while September industrial metals production fell on the previous month. The latter was largely unsurprising, while other Chinese economic releases were more in line, suggesting that industrial appetite in the country at a crucial time remains relatively robust.

China’s third-quarter GDP growth rate came in at 9.1 percent, below the forecast of 9.3 percent and a drop from 9.5 percent in the second quarter.

But September industrial production beat expectations, rising 13.8 percent year on year against the forecast of 13.5 percent, while September retail sales increased by 17.7 percent year on year, exceeding an estimate of 17.1 percent.

"Given the monetary tightening seen this year, it should not be too much of a surprise that some aspects of the market are slowing," Adams noted.

In the metal-related figures, copper production at 479,000 tonnes last month was a 7.5-percent fall from August's record and aluminium output dropped to 1.52 million tonnes from 1.54 million tonnes. Steel production dropped to 56.7 million tonnes but lead and zinc output rose, reports showed.

COPPER BELOW $7,300, ALUMINIUM INVENTORIES BUILD

Copper fell as low as $7,241.75 per tonne, its weakest since October 12, and then traded at $7,280, down $215 from the soft Monday close. There was a modest net 275-tonne increase in warehouse stocks to 451,925 tonnes.

On the supply side, PT Freeport Indonesia, a subsidiary of Freeport-McMoRan, has resumed processing some concentrate at the Grasberg mine in Indonesia after operations were temporarily halted due to security concerns and a cut pipeline

Aluminium was more rangebound, holding near the $2,200 level and trading at $2,195, down $22. A 16,950-tonne stock increase lifted the total to 4,574,350 tonnes, the highest since September 27, after more metal was warranted in Detroit - 22,095 tonnes - for 'third Wednesday' considerations.

Zinc traded at $1,857, a $46 loss, although inventory movements remain favourable. Stocks fell another 2,175 tonnes to 794,550 tonnes, a fresh low since April 19, while cancelled warrants - the metal booked for removal - rose 5.2 percent to 72,050 tonnes.

Nickel business at $18,640 was down $355 but stocks fell further - down 486 tonnes at 90,438 tonnes, a fresh low since February 2009. Cancelled warrants also climbed 13 percent to 7,020 tonnes.

Elsewhere, prices matched the overall trend. Tin slipped to $20,800, down $695 - there was a 490-tonne stock fall, however. Lead traded at $1,939, down $47. Stocks fell 675 tonnes but this was from all-time highs and they remain substantial at 387,825 tonnes.

Steel was quoted at $530/540, while the minors were largely neglected. Cobalt was offered at $34,000 and molybdenum indicated at a wide $26,000/28,750.


(Editing by Mark Shaw)

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