Copper prices pared gains on Wednesday, having risen to their highest in more than a week as the initial effect of an encouraging take-up by banks from the European Central Bank's lending operation began to fade. Benchmark copper on the London Metal Exchange (LME) traded at $7,440 a tonne in official rings, from a close of $7,260 on Tuesday.
The metal used in power and construction earlier hit its highest level in more than a week at $7,573 a tonne. Banks took a huge 489 billion euros at the ECB's first ever offering of 3-year funding, providing hope a credit crunch can be avoided and that the money may be used to buy Italian and Spanish debt.
But confidence faded as it transpired that a very large number of European banks had applied for the loans. "The European markets initially took it bullishly which sparked a short-covering rally," said analyst Leon Westgate of Standard Bank. "On the surface it looks like there continues to be funding stress. It doesn't really solve any problems it just means the liquidity concerns haven't gone away." Improving economic data from the United States had also help reinforce hopes of an economic recovery and demand for industrial metals.
"We had some really positive US housing data out yesterday which underpins what has been some really good data for the US over the past few months and showing that even with all the problems in Europe, US growth momentum seems to be picking up pace," said Gayle Berry, analyst at Barcap.
Sentiment was also helped by data showing China's refined copper imports jumped by nearly half on the year in November to reach the second-highest on record, as an open arbitrage between London and Shanghai bolstered a trend of increased imports for financing. "What's given it (the metals market) fuel is the Chinese trade data, which, although we got a taster for it earlier in the month... I think it's still helped to buoy sentiment," Berry said.
Copper prices have shed nearly one quarter of their value since the start of the year, on track for its first annual decline since 2008, as a deepening eurozone debt crisis has pushed investors to liquidate assets such as industrial metals. Analysts warned sentiment could remain fragile towards the end of the year in the face of persistent caution about the eurozone crisis.
"Some base metals were already seeking to consolidate after heavy losses recently, but macro pressure remained largely intact with the broader market still dissatisfied with policymakers' efforts at tackling the debt crisis in the eurozone," VTB analyst Andrey Kryuchenkov said in a note. In other metals, three-month aluminium was untraded in official rings but bid at $1,980 a tonne from a close of $1,962 a tonne on Tuesday.
Aluminium stocks in LME warehouses rose by 30,925 tonnes to another record high of 4.95 million tonnes. Cancelled warrants registered for the first time in Vlissingen, amounting to 145,000 tonnes, or 16 percent of its stocks. "Fundamentally, despite all the warehousing plays on the LME and short periods of spot premium spikes, there is little positively here, at least in the medium term, with supply still outpacing demand," Kryuchenkov said.
"Overall, aluminium is unlikely to make much progress here in dull macro trading before the end of the year, with the market seeking to consolidate near almost 17-month lows." Zinc, used in galvanising, rose to $1,870 from a close of $1,838, while tin, also untraded, was bid at $19,075 from $18,695. Battery material lead changed hands at $1,960 from $1,937 and stainless steel ingredient nickel was at $18,550 from $18,380.