LME MORNING - Metals solid, consolidate as copper holds near fresh all-time peak

London 04/01/2011 - Base metals marked the first day of LME trading in 2011 by initially pushing higher before turning back as a cautious tone set in and the complex absorbed yet another run-up in copper prices to fresh all-time highs.

"A lot of action happened yesterday when the LME was closed," Leon Westgate of Standard Bank said. “We have not seen much follow-through buying, so basically the market is consolidating.”

The mood was slightly inhibited by Chinese economic data, which showed a decline in last month's PMI - it was down 1.3 percent to 53.9. The first inventory report of 2011 was also uninspiring - some metals registered noteworthy stock increases.

Earlier, copper set yet another fresh all-time high less than $300 below the $10,000 per tonne target. Among the other metals, nickel hit its highest for eight months, while lead and zinc were around their best since mid-November.

"Prices are being driven by strong economic data and firm Asian equity markets, reflecting market players’ high risk appetite," broker Commerzbank said in a report.

US copper prices had strengthened on Monday, broker Credit Suisse noted, boosted by strong economic data - the ISM manufacturing index rose to 57.0 in December from 56.6 in November, suggesting that industrial activity continues to expand.

"This added to the positive sentiment, as weekly US jobless claims and pending home sales data released last week offered improvements in two key areas of the US economy," it said.

The shortened week will see a string of data releases, which could reinforce a pick-up in optimism over US economic prospects, culminating in the December non-farm payrolls data on Friday.

"Thursday's weekly jobless claims will be a taster for the non-farm payrolls - that is the main number this week," Westgate added.

Before that, LME January traded options will expire on Wednesday - an event that often triggers sharp price movement.


Copper touched a fresh record high of $9,728 per tonne in Asia earlier and then eased back to $9,675, still up $10. Inventories rose for the 14th successive day - up a net 125 tonnes at 377,765 tonnes, the highest since September 29 last year. The cash/threes backwardation was holding around $50/55.

Supply disruptions in Chile have reignited fears about shortages this year, with an accident last week at Codelco's Chuquicamata refinery curbing production, while Collahuasi is seeking permits to use alternative routes and resume exports after a port accident that killed three workers halted shipments in December.

"As long as this euphoria continues, copper should remain well supported. That said, the potential for a correction is also rising accordingly," Commerzbank added.

Lead was $3.50 lower at $2,568, below seven-week peaks of $2,581. Inventories rose 275 tonnes to 208,550 tonnes, the highest since May 2000.

But the market was supported by news that Canada's Ivernia had been ordered to halt lead shipments by the Western Australian government from the firm's Magellan mine after airborne lead was detected in shipping containers.

Nickel trimmed gains to trade at $25,050, up $100 but down from an eight-month high of $25,250. Stocks climbed 1,218 tonnes to 136,890 tonnes, the highest since May 28, 2010.

"The inventory increase has taken the edge off it," Westgate added.

Zinc was active, with two-way investment interest seen. Prices rose to just $1 below last week's seven-week best of $2,455 before settling at $2,448, up $6. Inventories held unchanged at 701,425 tonnes, close to last week's seven-year highs of 701,700 tonnes.

Elsewhere, aluminium approached $2,500 and then eased back to trade at $2,478, up $10 from Friday - stocks fell 2,075 tonnes to 4,274,975 tonnes. Tin business at $26,875 was down $45, with stocks rising 100 tonnes to 16,375 tonnes, the highest since July last year.

Steel billet was quoted at $560/580. In the minors, cobalt was stable at $38,000/44,100 per tonne, with inventories remaining at a record high of 278 tonnes. Molybdenum was quoted at $36,800/38,750.

(Editing by Mark Shaw)