LME MORNING - Base metals soften, investors adopt risk-off attitude

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By Kathleen Retourne, Correspondent Kathleen.Retourne@fastmarkets.com

London 29/03/2012 - Base metals were soft on Thursday morning on the LME when a weaker euro and global market uncertainty resulted in a risk-off attitude among investors.

The market fell yesterday on concerns about Chinese metal demand and the possibility of Spain dropping deeper into financial difficulty - these issues still weighed this morning despite better-than-expected German data.

The number of jobless in Germany, the largest EU economy, fell 18,000 against a forecast of 10,000. Meanwhile, the euro, at 1.3290 against the dollar, was around session lows.

Traders said sentiment approaching the second quarter is becoming less assured - there are fewer prospects for upticks in global growth and industrial activity.

"Concerns about demand continue to weigh on investor confidence," broker RBC said. "In particular, Chinese stockpiles of metal are growing and demand has fallen, which has been reflected in the recent sell-off."

Additionally, US economic data has become less positive this week - US durables goods orders figures on Wednesday, a leading indicator, showed only a modest increase.

US data releases scheduled for Thursday include the final fourth-quarter 2011 GDP growth rate and weekly unemployment claims, while US Federal Reserve chairman Ben Bernanke is scheduled to give a speech in Washington, DC.

Next week, market attention will focus on global PMI figures, with China's data scheduled for release this coming weekend.

Before that, there is the potential for business and price fluctuations to become more volatile, as end-month and end-quarter book-squaring and 'window-dressing' activity emerges.


METALS DROP ACROSS COMPLEX

Copper at $8,334 per tonne fell $15 on the previous day’s close. “While copper was able bounce up off the 200-day moving average, it is becoming susceptible to a sell-off. Momentum indicators have turned, suggesting the red metal may now test support at the bottom end of its recent range,” RBC said.

Stocks edged 525 tonnes lower to 255,625 tonnes, while cancelled warrants at 85,450 tonnes were up 1,200 tonnes due to increases in New Orleans and St Louis - these now account for 36,825 tonnes and 34,000 tonnes respectively.

Aluminium prices were down $24 or 1.1 percent at $2,146 - the market now has overhead resistance of $2,200. Inventories were down 3,950 tonnes to 5,068,575 tonnes, while cancelled warrants at 1,634,200 tonnes dropped 6,925 tonnes.

Zinc at $1,993.25 is below $2,000 and down $6.75. Yesterday, inventories were around a 17-year high but today fell 575 tonnes to 898,100 tonnes and cancelled warrants at 12,350 were down 725 tonnes.

“Shanghai, inventories are a mere nine percent below an all-time high, at around 38,000 tonnes,” Commerzbank said.

“There is no likelihood of these high stocks being significantly reduced in the foreseeable future, for the global zinc market, which has been in surplus since 2007, is expected by research company Brook Hunt to remain oversupplied to the tune of several hundred thousand tonnes both this and next year,” it added.

Nickel failed to get above $18,000 and at $17,494 was down $81. Stocks dropped 42 tonnes to 99,918 tonnes but cancelled warrants at 4,212 tonnes dropped 522 tonnes.

Lead has been trading below good support lines - it was recently at $1,966.25, down $24. Stocks were down 125 tonnes to 376,725 tonnes, while cancelled warrants at 22,450 were up 1,125 tonnes.

Tin at $22,425 was unchanged from yesterday’s close after stocks dropped 25 tonnes to 12,925 tonnes and cancelled warrants at 1,065 tonnes were down 10 tonnes.

Steel was indicated at $505/525, while stocks declined 2,210 tonnes to 45,175 tonnes. In the minor metals, cobalt was indicated at $31,000/32,350 and molybdenum was neglected.