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LME MORNING – Base metals firm, Chinese equity rebound sparks short-covering

Date 9/9/2015 8:31:04 PM Source:

A much-anticipated bout of short-covering kicked in following a recovery in equities and news earlier this week that Glencore will cut copper output by 400,000 tonnes.

Equity markets have built on their recent upmoves, most notably in China – the Shanghai Composite Index finished up 2.29 percent at 3,243.089.

“Bearish clouds in the short term appear to have abated,” a trader said.

Still, the recent moves higher should be eyed with caution because the underlying conditions remain intact, some market participants warned.

“For now we feel there is room for the rallies to continue but we would be wary of getting too bullish – further setbacks in China or further contagion from China in emerging markets might not be that far away,” FastMarkets analyst William Adams said.

“Headwinds to commodities are heavily influenced by the slowdown in China where the government has been steadfast in reforming and rebalancing the economy,” Bank of America noted. “In fact, we believe that the change in economic policies is almost as momentous… to commodity markets as the country’s entry to the WTO in 2001.”

The euro has slipped against the dollar this morning – it was last at 1.1154.

There is little market-moving data scheduled for release today – data already out of Japan showed some improvement with M2 money stock and consumer confidence rising. Later US numbers include the Jolts job data.

In the metals, copper retreated from its earlier seven-week high of $5,434 to trade at $5,388, per tonne still up $43 on Tuesday’s close. Business has been brisk, with close to 9,500 lots changing hands on Select so far. Stocks climbed a net 650 tonnes to 346,850 tonnes.

“The Glencore announcement of copper production cutbacks in Africa is also serving to naturally turn forward spreads bid,” the trader said.

Indeed, the Dec 15/Dec 16 copper spread was last at a backwardation of $16, having been in a contango of $6 at the end of last week.

Aluminium at $1,646 was $15 higher, back slightly from a multi-week high of $1,650. Stocks and cancelled warrants were both down 6,625 tonnes to 3,206,400 tonnes and 1,195,075 tonnes respectively.

Nickel at $10,060 was up $60 after stocks slipped 312 tonnes to 451,044 tonnes and cancelled warrants were 3,204 tonnes lower at 159,534 tonnes.

Zinc rose $8 to $1,821 after 2,050-tonne falls in both stocks and cancelled warrants to 551,375 tonnes and 139,500 tonnes respectively. Lead at $1,717 was $26 higher; stocks fell 1,925 tonnes to 170,325 tonnes.

Tin at $14,900 was $45 higher after finding resistance at $15,000. The backwardation in tin continued – cash/threes was last at $250. Further increases are likely should availability become more restricted, traders said.

Steel, cobalt and molybdenum were neglected. Cobalt stocks rose nine tonnes to 537 tonnes while cancelled warrants fell 10 tonnes to 34 tonnes.

Report by SHMET