London 04/01/2012 - Base metals eased back during Wednesday LME pre-market trading - the previous day's snap rally to three-week highs was halted by a lack of follow-through, while wider doubts over eurozone debt resurfaced.
"There was a bit of New Year optimism yesterday - to some extent due to stronger energy prices. But actually, higher energy prices are not good for industrial minerals prospects," a trader said.
"So we have seen some profit-taking come in today. Also, there has not been that much CTA short-covering yet. Speculators are short but the market needed to go a bit higher," he added.
Declines took place against a backdrop of a firm dollar, while worries over the eurozone debt crisis prevailed over start-of-the week optimism generated by encouraging manufacturing data in China and the US.
"The underlying concerns remain in place in that the EU debt situation hangs heavily over the markets, as does the risk of contagion, and on top of that China and Asia are seeing growth slow too," William Adams of FastMarkets said.
Some volatility is anticipated throughout the session because January traded options will be declared later - copper, aluminium and lead are in focus. Also, there is the continued absence of some Asian traders.
Shanghai has just reopened after the New Year's holiday and Tokyo is set to be closed for most of the week, so conditions may be choppy and illiquid at times.
Speculation that Greece may have to leave the eurozone was again raised by Greek government spokesman Pantelis Kapsis yesterday. Greece continues to struggle to avoid a sovereign default and the consequences may be catastrophic if the latest bailout package is not agreed by March, he said.
A rally in the euro - it rose above 1.30 against the US dollar in the previous session after falling to a 15-month low last week - lost further upward momentum. The single currency drifted to 1.3035.
The market focus is now shifting towards two major auctions of long-term bonds in Europe - an auction of 10-year government bonds is under way in Germany today before tomorrow's sale in France.
The results of these auctions may help to set the tone ahead of next Monday's meeting between Chancellor Angela Merkel and President Nicolas Sarkozy.
COPPER FLIP-FLOPS AROUND $7,700, ALUMINIUM INVENTORY NEARS 5 MLN TONNES
Copper fluctuated either side of $7,700, with recent trade at $7,698 per tonne, a $92 loss from the Tuesday close. But inventory declines resumed after two days of increases. The 2,425-tonne decrease took the total down to 369,150 tonnes, the lowest for just more than a year.
Aluminium traded at $2,070 per tonne, down $6 from the previous close, while warehouse inventories rose to a fresh all-time high. Stocks climbed a net 4,425 tonnes to 4,983,175 tonnes due to a 6,525-tonne warranting in Johor and are set to top the five-million-tonne mark soon.
Separately, 1,500 tonnes of aluminium were removed from the Vlissingen warehouse - the first outflow from this location. This hardly dents the queue there - 498,500 tonnes remain under cancelled warrant.
In other metals, lead was $22 lower at $2,078, with stocks climbing 1,350 tonnes from what were three-and-a-half-month lows to 353,075 tonnes. Zinc dropped to $1,868, down $10, after inventories climbed a modest 450 tonnes to 820,750 tonnes.
Nickel drifted to $18,747 from a previous $18,900, although there was a chunky 966-tonne stock fall. Tin fell $245 to $19,750, despite inventories falling 300 tonnes to a three-week low of 11,795 tonnes.
Steel billet was $4 lower at $535/548, with stocks climbing 780 tonnes to 73,905 tonnes. In the minors, cobalt and molybdenum were indicated at $31,250/32,000 and $28,700/30,750 respectively.
(Additional reporting by Clara Denina, editing by Mark Shaw)