Isra-Mart srl: Metals higher, technical buying and covering halts three-day downtrend

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Base metals recovered from a three-day downtrend during Wednesday’s LME pre-market trading session, but the atmosphere remained cautious amid economic concerns, including this morning's German bailout ruling

The German constitutional court has rejected a lawsuit brought by German professors intended to block Germany's role in the bailouts of, for example, Greece. Still, it ruled that the Bundestag must vote on all future aid packages, with approval needed from its budget committee. This could slow down any further bailouts.

The euro surged briefly on the news but has almost as quickly given up gains. Equities rose, with the DAX up more than 2.5 percent

“In line with equity markets, which recovered in late trading in the US yesterday and have resumed their uptrend movement in Asia, metals have also recovered some of their lost ground and are advancing on a broad front,” said Commerzbank in its daily report.

While the market has picked up, the main focus will be on President Barack Obama's speech on Thursday, in which he is expected to announce plans to create a $300 billion job-creation package.

“Needless to say there is room for disappointment, so the stronger tone may not last”, said Fastmarkets analyst William Adams.

“It looks as though the pull back in base metals in recent days has been more to do with consolidation after the late August run higher. Prices now seem to have found support and we would expect further consolidation although bargain hunting is likely to mean that the consolidation is done at higher price levels,” he added.

METALS STRUGGLE TO MAINTAIN GAINS

Copper prices remained above the $9,000 level although only just, trading at $9,008 per tonne, still $75 higher than yesterday’s close.

“Copper is ranging at the moment around the $8,970-$9,050 level. The market is obviously waiting for Obama's speech for direction,” said a trader.

The LME/Shanghai arbitrage window remains closed, but only by a thin margin of around $10/tonne.

Warehouse stocks at 465,250 tonnes were down a net 215 tonnes while cancelled warrants were down 100 tonnes at 5,875 tonnes.

“It is becoming increasingly clear that the global copper market will show a high supply deficit this year. In Chile, the mining minister has now acknowledged - the first official representative to do so - that Chile's copper production will decline this year. The price of copper should therefore be well supported,” said Commerzbank

On the other end of the scale, aluminium's global surplus is increasing and according to Sumitomo, Japan's third-largest trading house, and supply should exceed demand this year by more than 1.5 million tonnes. Commerzbank said, however, that prices should remain supported given high power costs.

Prices were unchanged at $2,380. Inventories were down 3,825 tonnes at 4,614,775 tonnes, however cancelled warrants were also down, placed at 310,400 tonnes, a decrease of 4,550, tonnes which helped to offset the headline figure.

Nickel stocks continued to fall, reaching their lowest since March 17, 2009 at 20,675 tonnes while cancelled warrants were up 132 tonnes to 8,130 tonne. These positive developments helped propel prices to $21,110, an increase of $435.

“It is worth noting that nickel is the worst performing metal on the LME this year - down over 16 percent - but the only metal with a year-to-date drawdown in stocks - down over 34,000 tonnes,” said broker RBC.

Zinc inventories were also down, dropping 950 tonnes to 847,825 tonnes, the lowest since May 17. Prices were up $17 to $2,206.

Lead stocks increased by 100 tonnes to 341,450 tonnes, but cancelled warrants dropped 225 tonnes to 13,400 tonnes. At $2,405, prices were up $17.

Tin prices were up $125 to $24,000. Stocks were down 150 tonnes to 21,755 tonnes, while cancelled warrants were also down 150 tonnes to 2,260 tonnes.

Steel was up $11, trading at $601, the highest for nine months, while cobalt was quoted at 34,500/36,750 and molybdenum at 32,000/32,400.