LME MORNING - Metals mostly move higher with euro, mixed data injects caution

London, 15 July 2010 - Base metals were largely rising during Thursday morning LME trading, with a resumption in euro strength the main driver again, although sentiment was laced with caution after a mixed stream of Chinese data and inventory figures.

The complex was absorbing an earlier batch of Chinese statistics - economic and metal-related - ahead of several US economic releases later in the day. The latest LME daily warehouse inventory report, which was more mixed than those of recent days, also proved to be a stumbling block.

"We are surprised the markets have not reacted more negatively to data and therefore feel there is a danger of some delayed reaction on the downside, unless the markets have already priced this in," William Adams of FastMarkets said.

Business was again slow to develop, with slackening summer conditions starting to eat into interest and activity. The pace of US economic releases picks up markedly later today, while the second-quarter earnings season continues, which may trigger movement and turnover in the afternoon.

The euro, which briefly paused in Asia earlier, was back on the upside, rising to hit fresh two-month highs against the dollar just shy of 1.28 - it got to 1.2797 before settling at 1.2785. In stock markets, European equities, initially slightly lower, were flat recently.

Overall, the financial sector is fretting over the US economic slowdown persisting - the minutes of the Federal Reserve's June meeting showed officials were more concerned about the pace of the recovery.

Overnight, Chinese economic data pointed only to a mild financial cooling. China's annual economic growth - in GDP terms - rose 11.1 percent in the first half of 2010 compared with the first six months of 2009. The Chinese government’s target is eight percent for the whole year.

The country's first-half CPI and PPI were up 2.6 percent and six percent respectively. Beijing’s CPI target for the whole year is for it not to exceed three percent for the whole year. The more benign outlook reduces the need for further policy tightening.

"On the one hand, this is a negative for metal demand and generally for global growth," Adams said. "But the fact that the measures China has taken seem to be working is encouraging and may mean they can take the foot off the economic brakes a little more."

On the metals side, the figures were more mixed, however. Chinese copper production rose six percent in June but aluminium output declined by 0.7 percent. There was a 14.3 percent in increase in lead production but a 5.8 percent fall in zinc output. Steel production dropped 1.1 percent in June and is seen falling further.

Attention will now focus on this afternoon's US figures - weekly jobless claims, IP, producer prices, the Empire State Manufacturing Index, and Philly Fed indicator.

COPPER OFF LOWS AS METAL AGAIN LEAVE WAREHOUSES, BUT ALUMINIUM INVENTORY RISES

Copper, which ranged from near to $6,700 on the upside to just above $6,600, settled near its highs to trade at $6,682, still down $43 from Wednesday's close. Losses were trimmed by a 20th successive daily stock fall. The 775-tonne net drop brought inventories down to 427,725 tonnes, the lowest again since late November 2009.

Aluminium stocks, however, rose earlier than anticipated ahead of next week's July 'third Wednesday' prompt date. Metal is usually warranted in significant tonnages during this week but today inventories rose a net 5,825 tonnes to 4,381,725 tonnes, with a 12,575-tonne warranting in Long Beach outweighing withdrawals.

The market, which has now compacted into a tight range either side of the $2,000 level, traded at $2,003, down just $2.

Nickel at $19,500 was up $100 after inventories fell for the 27th day in a row, down 234 tonnes at 119,562 tonnes, a fresh low since late September 2009. Lead traded at $1,819, a $7 loss - stocks fell 450 tonnes - while zinc was $10 easier at $1,840, with inventories climbing 900 tonnes.

Tin at $18,050 was up around $100, with stocks dropping 10 tonnes to 16,150 tonnes, a fresh 13-month low.

Steel billet stocks fell 910 tonnes or 2.9 percent to 30,095 tonnes but cancelled warrants - tonnage booked for removal - shrivelled to just 65 tonnes from 975 tonnes yesterday and more than 2,000 tonnes two days ago. Prices held steady at $435/440.

In the minors, cobalt was $36,800/40,000 per tonne, having traded up to $38,500 yesterday when business picked up. Stocks fell four tonnes from their highest since the contract was introduced to 190 tonnes. Molybdenum was stable at $30,550/33,500.

(Additional reporting by Hongmei Li in Singapore. Editing by Mark Shaw)

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