By: Kathleen Retourne

London 18/06/2012 - Base metals pared earlier gains during Monday morning trading sessions when initial optimism over the Greek elections faded and the euro dropped to 1.2639 against the dollar.

The yield on Spanish 10-year bonds rose to record seven percent despite the Greek result over the weekend, which saw a slim parliamentary majority for pro-bailout parties.  

Today, parties in Greece that broadly support the 130-billion-euro EU/IMF bailout will start talks on forming a government.  Meanwhile, finance ministers are meeting for a G20 summit today.

“[But] the Greek election does not address issues in Spain and Italy. EU policy makers must move swiftly towards further integration,” Fairfax' John Meyer said in a note. "Talk of project bonds will not suffice. Plans must be floated for debt sharing schemes across the Eurozone in one shape or another."

The Greek election initially defused immediate eurozone tensions, which have paralysed financial markets over the past week, dampening activity and price movements in the metals complex

Gains in metals, with copper climbing to a three-week peak and aluminium moving up from last Friday's 23-month lows, mirrored 'relief-style' trends in other financial markets.

But the rally soon ran out of steam while underlying eurozone problems remain in place - the market stepped back to trade around Friday’s closing levels.

For metals, the immediate focus will be on pricing against the June 'third Wednesday' prompt date.


METALS HEAD LOWER

Copper peaked to $7,615 this morning but is now back around Friday’s closing levels at $7,525 per tonne, just $14.50 higher.

Stocks ended their six-day rise, falling a net 325 tonnes to 249,125 tonnes, although Busan stocks continue to rise - these were up another 250 tonnes at 47,525 tonnes.

In the week to June 12, speculative investors again slightly raised their net short positions in copper to 13,300 contracts, their highest since March 2009, Commerzbank said.

“At a record 41,900 contracts, short positions are likely to prevent any significant increases in the price of copper for the time being. That said, a shift in sentiment among market players could result in covering of short positions, thus putting wind in the sails of copper," it added.

Aluminium at $1,936.25 was up $3.25 from Friday’s close, having fallen to a two-year low on Friday at $1,925.50. While many locations posted drawdowns in stocks, Detroit inventories rose 12,000 tonnes to 1,408,575 tonnes.

Global stocks were up a net 2,050 tonnes to 4,849,600 tonnes while cancelled warrants at 1,822,750 tonnes were up 19,500 tonnes - in Vlissingen, 22,000 tonnes were booked for removal.

Aluminium production cuts are increasingly common as prices slump, with the world’s largest manufacturer, UC Rusal, announcing its intention to shutter 10 percent of its capacity until the end of the year.

“In China, on the other hand, aluminium production is being artificially maintained: Henan Province – where the most aluminium is produced – is considering subsidising electricity in order to bolster local growth,” Commerzbank said. "This, however, will not help reduce the high supply surpluses."

In other metals, zinc at $1,903 was down $1, while stocks jumped 11,175 tonnes to 959,950 tonnes due to increases in New Orleans and Vlissingen. Cancelled warrants fell 2,850 tonnes at 49,900 tonnes.

Sister metal lead at $1,921.75 was down $1.25 after stocks ticked higher, up a marginal 100 tonnes at 344,850 tonnes.

Nickel business at $16,895 was up $70 after inventories fell 624 tonnes to 102,936 tonnes but tin was down $181 at $19,519 - stocks were unchanged at 12,180 tonnes.  

Steel was last traded at $415, while in the minor metals cobalt was indicated at $29,000/30,400 and molybdenum at $28,700/29,500.


(Additional reporting by Martin Hayes, editing by Mark Shaw)