By: Kathleen Retourne

London 08/10/2012 - Base metals dipped in premarket LME trading on Monday after China returned to the market following a week-long national holiday. A softer euro and uncertainty in the eurozone also conspired to pull down prices.

The correction was anticipated by some amid weak demand prospects from the country and a gloomy economic forecast - although prices ranged comfortably for most of last week without significantly moving in any direction.

“China’s return to the market has seen values slip somewhat, and recent gains will now consolidate before taking direction again,” a trader said. “Jobs numbers from the US being in line was encouraging but the unrest in the eurozone is still prevalent so markets remain vulnerable on developments here.”  

Base metals rallied on Friday after the September US non-farm payroll figures showed that 114,000 jobs were added last month, in line with expectations, but the unemployment rate unexpectedly dropped to 7.8 percent from 8.1 percent previously.

But the gains in the complex were reversed by a stronger dollar. The euro has dipped as low as 1.2953 against the greenback this morning from the previous session's close of 1.3029.

"The lack of positive reaction to Friday’s unemployment data raises a warning flag and, with the markets looking weaker this morning… it looks as though prices may well move lower to retest the quality of underlying support,” FastMarkets analyst William Adams.

In the eurozone, German trade balance data came in better than the expected 15.8B at 18.3B, while Sentix investor confidence for the eurozone for October at -22.2 came in below the expected -20.6 although it was better than the previous 23.2.

A eurogroup meeting begins this week in Luxemburg which will see focus shift to the official launch of the ESM and further details on Spain’s bailout requirement - newsflow from this meeting could provide some price direction.


DOWNWARD DRIFT

Aluminium at $2,083 per tonne was down $25 on Friday’s close. Index rolls have now started, lending Nov/Dec from today through to next Thursday.

 Aluminium stocks fell a net 8,650 tonnes to 5,024,350 tonnes, with only Rotterdam recording an increase, up 3,000 tonnes at 618,250 tonnes.

Cancelled warrants jumped again, this time by 40,300 tonnes to 1,673,225 tonnes due to a 48,800-tonne jump at Vlissingen to 822,400 tonnes there - they now account for 64 percent of all Vlissingen stocks.

Copper was $124 lower at $8,171 on profit-taking. Some tightness is still evident in nearby spreads, with Oct/Nov at $0.25/1.75 back, although this is down from $2.00 earlier this morning. Stocks slipped 175 tonnes to 222,500 tonnes and cancelled warrants were up 50 tonnes at 55,050 tonnes.

Nickel is managing to hold above $18,000 but at $18,075 last was still down $225 despite a 348-tonne fall in stocks to 124,512 tonnes, while cancelled warrants at 15,060 tonnes were down 306 tonnes.

Lead at $2,252 dropped $36 although inventories were down for the 22nd consecutive day, losing 3,225 tonnes to 251,350 tonnes - the lowest total since January 18 last year. Cancelled warrants were also down 3,225 tonnes at 103,400 tonnes.

Zinc felt the brunt of the downturn, dropping to a session and three-week low of $2,037. It was last at $2,044.50, still down $30.50, after inventories rose 1,950 tonnes to 996,225 tonnes and cancelled warrants fell 1,550 tonnes to 359,900 tonnes.

Tin at $22,100 was down $300. Nearby spreads are still in backwardation, with Oct/Nov at $5.00 back and Dec/Jan at $5.00/10.00 back. Stocks and cancelled warrants were unchanged at 12,175 tonnes and 6,110 tonnes respectively.

Steel remains soft at $340/360, while stocks were unchanged. In the minor metals, cobalt was indicated at $27,300/29,000 while molybdenum was neglected.


(Editing by Mark Shaw)