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METALS INSIDER: First sightings but magic "it" is still elusive

-- Andy Home is a Reuters columnist. The opinions expressed are
his own --
 LONDON, March 30 (Reuters) - The Chinese leadership is
confident the country has found "it." Germany is sure "it"
hasn't happened yet. Those searching for "it" in the United
States have been told by President Obama to be patient.
 Italian car company Fiat says it's definitely seen "it",
global metals giant Rio Tinto thinks we're near "it" but Detroit
automotive companies are still frantically searching for "it."
 The hot topic that is exercising the minds of financial and
political leaders is whether the world economy has stopped
free-falling and is starting to stabilize. "It" is the floor and
even the first fleeting sightings last week helped the LME
metals consolidate at higher levels.
 The Most Valuable Commodity "Confidence", as Chinese premier
Wen Jiabao has said, "is more important than gold or money" at
times of economic turbulence.
 China, for one, is confident that the worst is over.
 "Before (the economy) bottoms out, it has to bottom. I
believe it has bottomed, with the stimulus package and signs of
recovery in some industries," said Fan Gang, who sits on the
Chinese central bank's monetary policy advisory committee.
[ID:nPEK323419]
 Zhou Xiaochuan, governor of the central bank, agrees. In a
paper posted on the bank's website on Thursday, Zhou said "some
leading indicators are pointing to recovery of economic growth,
indicating that rapid decline in growth has been curbed."
[ID:nPEK17550]
 Recovery in China may not be enough to drag the rest of the
world out of recession but the country's dominant influence in
the metals markets means the sector should be an early
beneficiary.
 Hence the confident assertion by Guy Elliott, chief
financial officer of global mining house Rio Tinto, that "we are
not far away from the bottom" and that "there is a case, you can
believe, for a recovery in the second half." [ID:nSIN501501]
 
 BUYER OF FIRST RESORT
 Chinese buying is already a key pillar of support in the
recent price recovery in industrial metals, which has seen the
bellwether copper price put in its strongest quarterly
performance since June 2006.
 The country is snapping up metal like there's no tomorrow.
 The full February trade figures out at the start of the week
confirmed that imports of refined copper hit a fresh all-time
high of 271.000 tonnes. Imports of refined zinc hit a multi-year
high of 77,000 tonnes in February as did those of lead.
 China has switched to net importer of primary and alloy
aluminium in the first two months of this year after deluging
the rest of the world with exports over the last few years.
 All four metals have been targeted by national and regional
Chinese stock-piling initiatives. There are many who argue that
restocking is not the same as actually using the metal for
consumption and that Chinese buying is in reality no more than
the illusion of demand.
 That is particularly the case in those metals, such as
aluminium and zinc, where the stock-building programme is
intended primarily to bail out distressed local producers.
 Whether China really needs more aluminium and zinc is a very
moot point. But by buying up domestic metal at a premium to
prevailing prices, the country has opened up a monster arbitrage
with LME prices.
 In other words China has become the buyer of first resort
for the world's surplus metal and that metal, unsurprisingly, is
now on the move.
 The dragon's appetite is acting as a significant brake on
the previous strong rise in LME inventories of metal and has
provided a key underpinning for the Q1 metals rally.
 ELSEWHERE "IT" IS STILL ELUSIVE
 Confidence that the rest of the world is bottoming out would
provide another key support to industrial metal prices.
 But outside of China, no one is quite sure whether "it" is
there or not. The signals are still highly ambivalent.
 In the euro-zone the purchasing managers index for the
manufacturing index stabilised in March, although the
closely-watched IFO index in Germany sank to a fresh
post-reunification low. That prompted IFO economist Gernot Nerb
to warn that "the lower turning point has not yet been reached."
 Fiat, though, is sure "it's" there. "We are convinced that,
at the economic and global level, we have touched bottom", said
the Italian carmaker's head, Sergio Marchionne.
 No such confidence in Japan, though, where the Japan
Automobile Manufacturers Association (JAMA) forecast sales of
new cars, trucks and buses to fall 8.0 percent to a 30-year low
in the coming financial year starting April.
 And, critically, no sign of "it" in the automotive sector in
the U.S, where the administration's tough line on restructuring
has raised the prospect of a bankruptcy among The Big Three.
[ID:nN29306463]. The good news/bad news oscillator is pushing
back any consensus view of short-term metals prices. After an
up-down sort of week, most of the major LME contracts ended
little changed. China pulls to the upside, the rest of the
world, most particularly Detroit, continues to pull to the
downside.
 This leaves the recent copper-led LME rally on very fragile
ground. The market needs more sightings of "it", if the gains
are to be extended and the still numerous bears kept on the back
foot.
 While "it" remains elusive, however, there is the not-so
little matter of this afternoon's official announcement on the
fate of the Detroit automakers. A failure of one of the Big
Three has been a nagging fear on the LME "street" for months.
That fear could take concrete shape in the coming days, an
altogether different sort of "it."

LME three-month valuations on Friday and weekly changes:
            Close     Chg on Week       Pct Chg
 Aluminium     $1,420       -$39            -2.7
 Copper        $4,050       +$95            +2.4
 Lead          $1,280       -$65            -4.8
 Nickel        $9,700      -$275            -2.8
 Steel FE       $322.5      +$17.5          +5.7
 Steel Med      $325        +$35           +12.1
 Tin           $10,200     +100             +1.0
 Zinc           $1,350      +$90            +7.1
 (Editing by James Jukwey)
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