By: Martin Hayes
London 17/01/2011 - Base metals started the week on a slightly softer note on the LME on Monday, with prices ranging in mostly low-key trading, ahead of pricing against the January 'third Wednesday' cash date in the official sessions later.
Prices were in mid-range and losses were relatively small-scale, however, with earlier declines in Asia cushioned by an undercurrent of postitive sentiment generated by last week's economic events and data flow, which were, on balance, risk-friendly, analysts said.
"China’s tightening of bank reserves was offset by better than expected US industrial production and firmer equity markets," ANZ Global Markets said.
On Friday , the Chinese central bank raised its reserve ratio again by 50 basis points, the seventh increase since the start of 2010, highlighting the growing threat of economic overheating in the region. The prospect of additional further fiscal tightening in the near future could impact upon base metals.
Also on Friday, meanhile, metals-sensitive data showed that US industrial production rose 0.8 percent in December, against a 0.5 percent consensus forecast.
In the wider financial sector, the euro continued to unwind against the dollar, and was trading around 1.3290, with uncertainty prevailing over progress on the euro zone's sovereign safety net - a European finance ministers' meeting starts today.
The euro reached its highest since December 14 at 1.3454 on Friday, following successful Portuguese, Spanish and Italian bond auctions last week.
In the metals, copper was trading at $9,620, down $30 from Friday's close, but finding support on dips near $9,600. The technical tightness that hit the market in December has eased, with the cash/threes spread at $10.00/12.50 backwardation, although there is likely to be a flurry of cash business in the next two days.
Aluminium was trading at $2,469, down just $3, with the market continuing to hover under $2,500, but supported on the downside.
"Rising costs for coal and power rationing in China have led to cutbacks in production. In Australia, the country’s largest aluminum smelter had to declare force majeure due to the floods," broker Credit Suisse noted.
Elsewhere, zinc traded at $2,446, an $11 loss, while lead dipped to $2,672, a $6 decline. The recently-strong nickel market was trading at $25,710, a $165 fall, while tin slipped to $26,830, a $20 dip.
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