LME base metals decline; pressured by risk aversion

Profit-taking pressure took most London Metal Exchange metals lower Wednesday as risk aversion dominated, a theme analysts expect to continue as new subprime casualties arise. "Flow will be light and choppy if the dominant prevailing influence continues to be the subprime mortgage market," said JP Morgan analyst Michael Jansen. "For the next week or so, markets will be reactionary," he added. The complex was under pressure from the start, with Chinese stocks down 4% overnight. Moderately bearish economic news from China further damped the tone. China's official Purchasing Managers' Index, or PMI, fell to 53.3 in July from 54.5 in June, the third consecutive monthly slowdown. A PMI reading above 50 indicates economic expansion. LME copper dropped 2% to $7,870/metric ton, as did LME nickel, to $30,750/ton. Without fresh developments on the strike front, LME copper prices eased, analysts said, as a large stock build only added to bearish sentiment. LME copper saw a 1,725 ton build, with stocks now approaching 105,000 tons. Wage talks continued Wednesday at Southern Copper Corp.'s (PCU) Cuajone and Toquepala mines and its smelter and refinery. "We made progress on a lot of issues, but there is still no solution," said Jorge Chavez, the general secretary of the Toquepala unit. Negotiations at Grupo Mexico (GMEXICO.MX) remain ongoing. Late Tuesday, however, striking contract workers at state copper giant Codelco accepted the company's benefits offer and ended their month-old strike. In other metals, LME tin gave back Tuesday's gains, down 2.5% to $15,800/metric ton as of 1637 GMT. Analysts noted news reports that PT Koba Tin has been given the go- ahead to resume purchases of tin ore from small scale miners on Bangka island. The company stopped buying ore six months ago when it was accused of obtaining concentrates illegally from mines outside its leases, according to BNP analyst David Thurtell. LME lead fell back early, as Tuesday's shortcovering dried up, but was bid up almost 2% towards London close, to trade at $3,160/ton as of 1729 GMT. A fall in stocks and a rise in canceled warrants limited the losses that derived from weakness in the broader complex, Thurtell said. In other metals, LME nickel came under light producer selling, but found support around $3,600/ton. The metal is likely to see further downside pressure, said Natixis Commodities Metals in its quarterly report Wednesday. "Following the recent sharp correction in the nickel prices, alloy surcharges will fall dramatically so consumers and service centers are reluctant to place orders with stainless prices falling," Natixis said. In other metals, LME zinc tracked copper for most of the session, finishing down 0.5% at $3,530/ton as of 1711 GMT. LME aluminium finished similarly lower, at $2,739/ton, down 0.5%.