LME MORNING - Base metals prices fall widely after Cyprus debt bailout, four-month lows hit

By: Martin Hayes

London 18/03/2013 - Base metals retreated widely during Monday LME premarket trading, with copper, aluminium, zinc and lead all sliding to four-month lows.

The complex has come under pressure from diminished risk appetite while global financial markets were rocked by the weekend's bailout deal for eurozone member Cyprus.

As well, the euro was near its lowest for four months and equities were softer while gold was at its strongest for nearly three weeks on safe-haven demand.

"Metal prices are under significant pressure and are falling across the board, amid a generally much higher level of risk aversion among market players. The price slide was triggered by the events surrounding Cyprus," broker Commerzbank said.

The catalyst for the sell-off and resumption in the March metals downswing was Europe. After all-night Friday talks, eurozone ministers agreed a 10-billion-euro bailout for eurozone member Cyprus. The deal was reached after talks in Brussels between the ministers and the International Monetary Fund (IMF).

But because much of Cyprus's debt was rooted in its banks, that sector would have to bear a large part of the burden. Bank depositors must pay up to 10 percent of their holdings in a 'one-off' levy as part of the deal.

The euro was trading around 1.2940 against the dollar, having fallen to 1.2878 at one stage, its lowest since December 12. On Friday, it ended around 1.3050. Gold bullion was near $1,600 per ounce, having earlier hit $1,606.65, its highest since February 27.

The markets are now grappling with heightened concerns over the eurozone's future after several months of relative stability. There are worries that this new precedent might unnerve bank customers in other eurozone countries in debt difficulty.

"We feel the Cypriot development is likely to lead to further 'risk-off' trading in the short term while mainland Europe adjusts to the change in EU tactics, which in turn could have even more widespread global implications should European investors and savers panic," William Adams of FastMarkets said.


Copper fell 2.6 percent to $7,545.75, its weakest since November 9, and then clawed back to $7,580 per tonne, down a hefty $171 from the Friday close. As expected, there was another increase in warehouse stocks, which have now risen for 23 successive days.

Inventories climbed a net 18,200 tonnes to 543,925 tonnes, the highest since March 2010, with 6,850 tonnes warranted in Antwerp, 5,475 tonnes in New Orleans and 5,325 tonnes in Johor. With the first quarter nearly over, inventories are up 223,925 tonnes or 70 percent and are seen reaching one million tonnes by the end of the year.

Aluminium touched $1,933, a level last seen on November 22, before holding at $1,937, down $28. As in copper, there was an inventory increase, which also reflected warranting for 'third Wednesday' purposes. Stocks jumped 9,100 tonnes to 5,182,175 tonnes, with 16,350 tonnes warranted in Vlissingen.

Zinc business at $1,918 was down $36, near a $1,913 four-month low - stocks were up 575 tonnes at 1,205,125 tonnes. Lead at $2,174 was $48 lower and around its four-month low, even though stocks were down for the eighth day in a row - the 2,000-tonne fall took the total down to a five-month low of 275,500 tonnes.

In others, tin was trading at $21,266, down $584 and close to two-week lows - stocks fell five tonnes from 10-month highs to 13,770 tonnes. Nickel at $16,580 was $320 lower and near its cheapest for one week. Stocks were up 762 tonnes at a three-year high of 162,306 tonnes.

Steel billet was neglected - stocks remained stuck at 83,070 tonnes for the 46th day in a row. Cobalt was indicated at $24,975/25,250 while molybdenum was neglected.

(Editing by Mark Shaw)