Monday 22 November 2010

LME MORNING - Metals stable, supported by steady euro; complex cautious still

London 22/11/2010 - Base metals settled into a routine sideways trading pattern during Monday morning LME trading, having pulled back to consolidate below early highs but broadly underpinned by the steady euro and the financial rescue plan for Ireland that that was agreed yesterday.

Despite the multi-billion-euro loan package that Ireland has requested, sovereign debt will remain an issue in the eurozone, so sentiment in the metals complex has been laced with caution.

"Funds generally derisk ahead of Thanksgiving and the Christmas break, hence the profit-taking seen last week," John Meyer of broker Fairfax said.

The euro was trading around 1.3735 against the dollar. As well as a steadier euro, share markets were also higher, helping to defuse one element of uncertainty that has overhung the base metals complex so far this month, causing some hefty price falls.

"Over the past weeks, the price trend in industrial metals had been fairly bumpy with several temporary corrections and recoveries," broker Credit Suisse said. “Nevertheless, the sector is still within a fairly strong uptrend.”

"With the market focus now turning away from sovereign debt problems in Ireland, we think that economic fundamentals are likely to come back to the forefront," it added.

The terms of Ireland's financial rescue plan are to be negotiated over the coming days. On Sunday, the Irish Government agreed to make a formal request for a multi-billion-euro loan package to the European Union and the International Monetary Fund.

These loans are to tackle the country's banking and budget crisis in a bid to protect Europe's financial stability.

Nevertheless, the wider backdrop will continue to sway price movement and sentiment for the metals, with China and further monetary developments still in focus. China on Friday raised cash reserve requirement for banks, the second such move in a fortnight, stepping up its battle to tame inflation.

Advances in the metals complex were measured, however, with the market still rebuilding momentum after the steep sell-off and across-the-board technical corrections.

"We would say prices were difficult to justify at the highs and, with China now trying to rein in inflation, the fact that Ireland has had to seek assistance could mean there is more trouble ahead for Europe," William Adams of FastMarkets said.

Action this week is likely to be compressed - US markets are closed on Thursday for the Thanksgiving Holiday. Today, apart from EU consumer confidence figures later, there are no significant data releases so price movements are likely to reflect currency swings and technical signals.

"The economic focus will remain on the third-quarter preliminary US GDP data due for release tomorrow," Fairfax's Meyer said.


Copper stalled above $8,500 earlier and ranged back to trade recently at $8,410 per tonne, up just $6 from Friday. Inventories continue to decline - they fell for the 12th day in a row, down a net 825 tonnes to 359,000 tonnes, the lowest once more since October 20, 2009.

Feb copper minis saw recent business at $8,424, with 10 lots changing hands - brokers from today are quoting the five-tonne cash-settled contracts more actively.

On the physical side, reports circulated that Chile's Codelco had raised annual physical copper premiums for Chinese buyers by 35 percent to $115 per tonne for 2011. So far it has raised premiums to Japanese, South Korean and European buyers to $98 per tonne.

Aluminium was hemmed in below the $2,400 level, with business at $2,291, up $27 still. There was a 4,100-tonne fall in stocks to 4,298,025 tonnes.

Nickel business at $21,900 was up just $50 while stocks recorded their fourth successive daily decline from what had been five-month highs, dropping a net 90 tonnes to 130,014 tonnes.

Elsewhere, zinc traded at $2,170, up $10, with stocks falling 400 tonnes. But lead fell back to $2,270, down $7, despite a 200-tonne inventory decline. Tin rose $100 to $25,100 although inventories rose again - up 100 tonnes.

Cobalt inventories, which have been declining modestly in recent days, reversed that trend and jumped 8.6 percent or 15 tonnes to 189 tonnes due to warrantings in Rotterdam. There were no movements in headline molybdenum and steel billet stocks.

BULLION MORNING - Gold rangebound but stronger euro, macroeconomic woes support

London 22/11/2010 - Gold was rangy in Monday morning trade, supported by a stronger euro after the Irish financial bailout was confirmed, while persisting macroeconomic uncertainty maintained safe-haven interest.

Spot gold reached its highest in almost a week at $1,365 but is trading within a relatively tight band - it was last at $1,359.80/1,360.60 per ounce, up $6.30 from Friday. On the charts, next resistance is set at the uptrend line of $1,366 and then $1,376, with support pegged at the $1,342 support line and around the recent low of $1,329.

On Sunday the Irish Government agreed to make a formal request for a multi-billion-euro loan package to the European Union and the International Monetary Fund, with terms to be negotiated over the coming days. These loans are to tackle the country's banking and budget crisis in a bid to protect Europe's financial stability.

But fears of the effects of Chinese fiscal tightening last week - it raised the cash reserve requirement for banks for the second time in two weeks on Friday - combined with lasting fears of debt contagion in the eurozone despite the Irish aid package are keeping safe-haven demand well supported.

"Since investment demand continues to be strong and US bond yields remain at a very low level, we would argue that prices have further upside," broker Credit Suisse noted. "However, the uptrend is likely to be less steady in the future as sentiment looks shaky.”

Gold has struck repeated record highs in recent weeks, bolstered by store-of-value-related buying on inflationary fears and a subsiding dollar, to hit a lifetime best of $1,424.60 on November 9.

But a steep correction in recent sessions - it fell as low as $1,329.80 last week - has heightened expectations of volatility in the near term, market participants said.

"While a deeper correction shouldn't be ruled out, with gold falling as low as $1,250 as year-end approaches, uncertainty created by eurozone debt issues and another round of quantitative easing in the US are expected to continue to attract buyers to the perceived safe-haven asset," broker MKS said.

The euro struck its most expensive since November 11 against the dollar at 1.3786 this morning, buoyed by news of the Irish bailout - it has since settled back to 1.3734, still up around half a cent.

And European equities were solid in early trading, trading between 0.3 percent and 0.5 percent higher.

Only eurozone consumer confidence figures are due in a light day for data, although ECB president Jean-Claude Trichet is due to speak this afternoon.

Among other precious metals, silver was at its most expensive since November 10 at $27.92 per ounce earlier this morning before paring gains but, at $27.54/27.59 per ounce, was still up 20 cents.

Platinum rose to its costliest in almost a week at $1,676 per ounce before settling at $1,666/1,671, flat from the previous session.

Palladium gained $6 to $709/714 per ounce - it had hit its highest since November 10 at $714 earlier.

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