METALS-Aluminium hits 2-month high as new LME rules expected

Mon Oct 28, 2013 2:02pm EDT

* LME due to announce decision on warehouse rule changes

* Funds buy zinc and lead on good outlook

* Expectations of Fed tapering shift further into 2014

* Dollar rises against basket of currencies

By Susan Thomas and Eric Onstad

LONDON, Oct 28 (Reuters) - Aluminium touched the highest level in two months on Monday as traders said investors were betting that the London Metal Exchange (LME) would make changes to warehouse rules that would boost the price of the metal.

Zinc and lead also hit the strongest levels since August on fund buying, while copper was steady.

Three-month aluminium on the LME climbed to a session high of $1,900 a tonne, the highest since Aug. 23. It failed to trade in closing open outcry activity but was last bid at $1,895, up 0.8 percent.

The LME said on Friday its board had made a decision on whether to overhaul its controversial warehousing network, which is plagued by backlogs especially in aluminium, but it would reveal that decision later.

"There's a belief that when the LME changes come out, it will have a positive effect on aluminium," a trader said.

Aluminium volumes were the highest of any LME metal on Monday at 15,200 lots, compared with 11,108 for zinc and 10,595 for copper.

"Aluminium prices are showing tentative signs of breaking out of their trading ranges, and two closes above $1,890 could set up an advance to $1,920 as the next stop," analyst Edward Meir at broker INTL FCStone said.

Zinc gained 0.7 pct to close at $1,969 a tonne, and lead ended up 0.2 percent to $2,210 after touching a peak of $2,218. Both touched the firmest levels since Aug. 28.

"Zinc and lead and are the favourites of a lot of people in the fund community, who see them as having the best fundamentals," the trader said.

"Lead and zinc look like they're building up momentum. They did well on Friday, and we came out of the gates today."

LOOSE FED POLICY

Copper was steady as hopes that the U.S. Federal Reserve would keep its monetary policy loose until next year offset a stronger dollar and concerns top consumer China may tighten credit.

Copper closed up 0.1 percent to $7,190 a tonne, still within the $7,000-7,420 range it has held since early August.

"Views are hardening quite clearly to the idea that tapering is a long way off now," BNP Paribas analyst Stephen Briggs said.

The Fed's rate-setting committee ends a two-day meeting on Wednesday. The chances it will trim its $85 billion monthly bond buying are seen as minimal given the uncertainty created by this month's government shutdown in Washington.

BNP had expected the Fed to start tapering in March next year but has now raised the probability that it could be later than that, Briggs said.

Asset purchases tend to support base metals by eroding the dollar and by increasing liquidity available to business and commodities investors.

The dollar rose against a basket of currencies on Monday. A stronger U.S. currency makes it more expensive for foreign investors to purchase dollar-priced commodities and therefore weighs on prices.

U.S. manufacturing output slowed in September as the production of computer and electronic goods fell, suggesting business spending ended the third quarter with less momentum.

Chinese money market rates and policy were also in focus after rates shot up last week to their highest levels since June and regulators signalled they were considering mild tightening to rein in rampant inflation in China's housing market.

Among other LME metals, tin closed unchanged at $23,200 a tonne, and nickel ticked up 0.1 percent to $14,590.

PRICES

Three month LME copper

Most active ShFE copper

Three month LME aluminium

Most active ShFE aluminium

Three month LME zinc

Most active ShFE zinc

Three month LME lead

Most active ShFE lead

Three month LME nickel

Three month LME tin

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