WSJ:BASE METALS: LME Metals Fall On Strong Dollar; Await U.S. Data
SINGAPORE (Dow Jones)--London Metal Exchange base metals prices fell in Asia Thursday as the dollar strengthened against the euro amid growing concerns over the debt crisis in Greece. Lack of a clear direction as the market waits for U.S. housing starts data due later in the day also contributed to the general weakness in prices.
Three-month copper was trading at $9,075.25 a metric ton at 0600 GMT, down $78.75 from Wednesday's settlement.
The complex was mixed in early trading in Asia, but prices fell across the board as the dollar strengthened against the euro. A strong dollar makes dollar-denominated commodities such as base metals more expensive for buyers holding other currencies.
The dollar was trading at 1.4115 to a euro at 0600 GMT compared with 1.4177 late Wednesday in New York. The euro's weakness followed a report in Dutch newspaper Financieele Dagblad, quoting European Central Bank Governing Council member Nout Wellink as saying the European Financial Stability Facility should be raised to EUR1.5 trillion. The report suggested Greek sovereign debt problems may be more serious than previously thought.
The LME will continue to follow the fortunes of the EUR/USD before the release of housing starts data in U.S. trading hours, a Singapore-based analyst said.
"There's a lack of conviction in the market," she said, attributing the lackluster trading early Thursday to a lack of fundamental news across the metals market and worse-than-expected U.S. data released Wednesday.
Wednesday's disappointing economic reports added to worries that stumbling U.S. growth may curb copper demand. The U.S. consumer-price index last month posted its biggest gain in almost three years, industrial-production growth came in lower than expected in May, and manufacturing conditions in the New York region weakened this month.
In the medium-term, the metals need to see slower fiscal tightening in the second half of the year from China, the world's second-largest economy, before making a decisive move higher, the Singapore-based analyst said.
"It will be a positive if the government slows the pace of tightening in the second half and it will lend support," she said.
The Chinese government made further moves to calm rising prices and slow inflation Tuesday when it increased banks' reserve requirements by half a percentage point, the sixth increase this year. The change takes effect June 20.
But the move wasn't as aggressive as some market participants had anticipated, given that inflation still continues to be a major problem in China. The less aggressive tightening measures will help soothe fears in the market that the Chinese economy will slow sharply, she said, adding that she expects copper demand and imports to rise in the second half of 2011.
"We would expect to see a pick-up (in Chinese imports) in the next two months," the analyst said.
Recent draw-downs from LME-bonded warehouses in South Korea also indicate better Chinese demand nearby, she said, but noted that stocks both inside and outside China continue to remain high.
Copper inventories in LME warehouses fell by a net 1,050 tons Wednesday to 472,625 tons, with the largest drop registered in terminals in Gwangyang and New Orleans. Cancelled warrants for copper, a proxy for metal that is about to leave warehouses, stood at 3.39% of all stock Wednesday, down from 3.54% Tuesday.
Tin saw the steepest fall among base metals Thursday, falling 1.4% to $24,800/ton as bearish sentiment prevailed amid expectations that the supply squeeze in Indonesia will ease in the second half of the year.
Tin reached a record of $33,600/ton on April 11 on concerns over an impending supply shortfall from Indonesia and the Democratic Republic of Congo.
The following are LME three-month base metals prices at 0600 GMT and the changes from the previous PM kerb:
