London 11/01/2012 - Base metals raced to fresh multi-week highs during active premarket trading on the LME on Wednesday, further extending this week's technically fuelled rally and shrugging off wider market negativity.
Copper led the pack higher, hitting a one-month high, with aluminium jumping to its best for two months. Most other metals set fresh highs for the current upmove - nickel hit two-and-a-half-month peaks, while zinc and tin set one-month highs.
"This [rally] looks like it could go further," a trader said. "There are likely to be people who incorrectly called the 'top' and sold getting stopped out now."
Advances this week have taken place against the backdrop of the start-of-the-year rebalancing exercise by the two most followed commodity benchmarks, Dow Jones-UBS Commodity Index and S&P GSCI Index. This runs until Friday.
But the extent of the advances means that some may now be getting over-stretched on the upside - wider fundamentals have been lagging.
"[There is] some room on the upside here and we see it continuing for the short term. [We] would be wary of getting fresh long at these numbers though," a second trader said.
In wider markets, the euro was trying to gain some lost ground against the dollar at 1.2770 but remains near 16-month lows. European equities trended lower - worries over the eurozone debt situation show no signs of abating.
And although Germany's annual gross domestic product grew three percent, it edged lower in the last quarter.
A European Central Bank policy meeting is scheduled for Thursday, while investors also await long-term bond auctions in Italy and Spain.
COPPER CHALLENGES LEVELS ABOVE $7,800/T
Copper jumped above $7,800 amid chart-based stops, hitting $7,831 per tonne, its highest since December 9, before prices settled at $7,780, a $35 advance.
Yesterday, the metal reacted to the high level of imports into China last month, while announcements of production curtailments in the aluminium market also benefitted sentiment in copper, FastMarkets analyst William Adams said.
Inventories fell for the sixth day in a row - down 1,125 tonnes at a new 13-month low of 364,250 tonnes. Also, cancelled warrants - metal booked for removal - jumped 24 percent to 50,000 tonnes, the highest since November 3, due to a 10,000-tonne cancellation in New Orleans.
Aluminium hit $2,174, its highest since November 14, and then traded at$2,166, a $2 gain. Stocks fell as well, dropping 3,825 tonnes to 4,962,650 tonnes.
The market was bolstered by announcements of output cuts by several producers. Norsk Hydro said it might curtail aluminium production at its 180,000-tonne-per-year Kurri Kurri plant in Australia; this follows yesterday's comments from Alcoa that the global aluminium market will move into a deficit this year.
In other metals, nickel rose to $19,679, the highest since November 1 and then held at $19,550, up $45. Stocks rose 306 tonnes to 92,844 tonnes. Zinc hit $1,942 and subsequently traded at $1,931, up $1 - inventories were down 825 tonnes at 819,450 tonnes.
Lead gained $19 to trade at $2,008, with a 350-tonne stock fall seen. Cancelled warrants rose 39 percent to 32,250 tonnes, with 9,150 tonnes cancelled in Port Klang.
Tin hit $20,475 before settling at $20,380, up $105. Stocks fell for the seventh day in a row - down 20 tonnes at 11,250 tonnes, the lowest since April 2009. Cancelled warrants doubled to 2,545 tonnes - a 1,250-tonne cancellation was seen in Johor.
Steel was indicated at $527/540, with stocks falling 715 tonnes to 74,035 tonnes. Cobalt was quoted at $31,250/31,900 after inventories rose three tonnes to 304 tonnes. Molybdenum was indicated at $29,000/30,750.
(Additional reporting by Clara Denina. Editing by Mark Shaw)