London 22/05/2012 - Base metals generally turned lower during Tuesday LME premarket trading after the early upside push lost traction and the complex reverted to a sluggish sideways mode.
While last week's selling intensity has abated, there is little solid upside momentum given the drag from wider financial marketplace sentiment, traders said.
"Most of the buying is short-covering but it is not panicky," a trader said. "The fund and CTA shorts are all in the money - they just take a bit of money off the table from time to time."
The battering that sentiment has taken over the past week limited the extent of the upside correction - despite some indications from China that growth will be reinvigorated, the uncertainty surrounding the eurozone remains key.
"Until there is some clarity over Europe, over Greece and the euro, there is nothing to justify a trend-reversal. Instead, it just needs some bit of bad news or talk out of Europe to hit stock markets and currency - then it is 'risk-off' again," the trader said.
But the extent of the sell-off - all metals fell to multi-month lows last week - has encouraged some opportunistic industry buying.
"While the situation in Europe remains a big question mark and the 'sell in May and go away' crowd have been active, fresh consumer enquiries to hedge forward exposure is a telling sign that short covering spikes are becoming more likely," broker RBC said.
As well, Chinese Premier Wen Jiabao said that China's government would "implement a proactive fiscal policy and a prudent monetary policy while giving more priority to maintaining growth", sending a strong signal that further policy easing would be used to counter sluggish growth.
For now, metal price declines appear to have slowed in intensity, suggesting that there the current spell of sideways consolidation may continue in the short term.
But the eurozone sovereign debt crisis remains the main drag on financial market sentiment ahead of the traditionally slow third quarter. This political and macroeconomic uncertainty prevailing over the status of Greece and eurozone membership seems destined to overhang sentiment for the medium term.
The euro, having recovered from four-month lows of 1.2722 set on Monday, was drifting around 1.2765 against the dollar ahead of an informal summit of EU leaders on Wednesday.
There, French President Francois Hollande will propose mutualising European debt. But before that, US data releases resume today, with the Richmond manufacturing index for May and existing home sales figures for April to be issued later in the session.
COPPER REBUFFED OVERHEAD
Copper briefly pushed above $7,800 to trade at its highest for a week but then lost ground and backed away to $7,725 per tonne recently, down $6 now from Monday's kerb close. Meanwhile, warehouse stock declines resumed, with a net 400-tonne drop to 223,975 tonnes. There were further inflows in Asian stores but these were offset by widespread withdrawals.
Aluminium was $16 lower at $2,031 - the market continued to stagnate, albeit comfortably above $2,000. Stocks fell 6,850 tonnes to 4,958,000 tonnes.
"Aluminium is turning into a dull market - there is not much volatility - and considering how big it is [globally], liquidity is down. You get days when the volume is lower than zinc," the trader said.
In other metals, zinc slipped back below $1,900 to trade at $1,897, an $8 decline. Today, stocks fell 1,250 tonnes to 944,825 tonnes from 17-year highs. Lead was $8 softer at $1,933 even after inventories fell 700 tonnes to 357,300 tonnes.
Tin business at $19,380 was still up $130, although there was a 105-tonne jump in stocks to 14,575 tonnes. Nickel slipped to $17,017 from Monday's $17,185, but stocks declined 390 tonnes to 105,732 tonnes.
Steel billet was neglected and indicated at $440/470. Cobalt and molybdenum likewise lacked interest, quoted at $30,000/30,950 and $29,750/31,500 respectively.
(Editing by Mark Shaw)