LME MORNING - Base metals retreat cautiously, market awaits key data and ECB rate decision

By: Kathleen Retourne

London 06/06/2013 - Base metals drifted back from their early-week highs in Thursday morning LME trading on growing investor caution ahead of an ECB meeting later today and US non-farm payroll numbers tomorrow.

The euro provided some support, though, rising to a four-week high of 1.3119 against the dollar on expectations that the European Central Bank will keep its main interest rate unchanged at a record low of 0.5 percent.

"Prices are digesting recent gains with one eye on important non-farm payroll data out tomorrow," a trader said. "A reading below expectations could see recent optimism undone as data in recent months has seen a good uptick."

Although a weaker-than-expected result for the US May non-farm employment change would point towards a slowdown in the US economic recovery that could weigh on metals consumption, it is difficult to gauge how the market would react since a disappointing result would lift expectations for prolonged US Federal Reserve monetary stimulus measures.

"The latest indicators point to some downside risks for the labour market report on Friday," broker Credit Suisse said in a note. "A payroll print below 200,000 on Friday is likely. If the release is even below expectations at 167,000, this should ease concerns that the Fed will quickly reduce or even complete its asset purchase programme."

After yesterday’s data-heavy day, releases today are minimal, with US challenger job cuts and unemployment claims the key focus.


Copper at $7,351.25 per tonne was at a session low and down $103.75 on the previous day’s close, with around 9,500 changing hands on Select by 10:30 BST.

While lower, the red metal continues to take support from news that production at Freeport Indonesia’s Grasberg mine may be halted for up to three months while the company awaits a full government investigation into last month's fatal mine collapse.

Inventories fell for the third consecutive day, down a net 1,925 tonnes at 610,375 tonnes, while cancelled warrants dropped 2,400 tonnes to 223,650 tonnes.

Aluminium has stepped lower after the previous day’s rally - it was last at $1,961.50, a $10.50 loss, but on the supply side China’s largest producer, Aluminium Corp of China (Chalco), will shutter around 380,000 tonnes per year of capacity because of poor market conditions.

"This is equivalent to 9-10 percent of the company’s total production capacities," Commerzbank said in a note. "Chalco is thus scaling back its production again for the first time since 2009 and in doing so is following the lead of other major aluminium manufacturers."

"That production is also being scaled back in China now is an important signal, however," the bank added. "We therefore envisage further capacity shutdowns over the next few months. Production costs are particularly high, above all in the eastern provinces of China. The aluminium price may well find good support in the medium term."

Stocks and cancelled warrants both fell 8,525 tonnes to 5,196,025 tonnes and 2,077,750 tonnes respectively.

Lead at $2,200 dropped $45.50 or two percent even after inventories fell for the 16th consecutive day, down 2,650 tonnes to 207,750 tonnes, although cancelled warrants dropped the same amount.

Zinc at $1,934.75 was down $28.25. After 11 days of drawdowns, stocks rose 5,000 tonnes to 1,082,050 tonnes. Cancelled warrants fell 4,875 tonnes to 726,550 tonnes.

Nickel lost $165 to $15,045 but is holding above $15,000 for now. Stocks were down 90 tonnes at 179,808 tonnes and cancelled warrants fell 1,068 tonnes to 23,268 tonnes.

Tin fell $210 to $20,940 - stocks rose 150 tonnes to 14,235 tonnes and cancelled warrants fell 90 tonnes to 3,105 tonnes. Steel was quoted at $155/180, with stocks unchanged, while the minor metals were neglected.

(Editing by Mark Shaw)