In the first real movement in budget deficit negotiations to avoid the fiscal cliff, US House of Representatives Speaker John Boehner, offered to accept a tax rate increase for Americans earning over $1 million. "The market is still consolidating in a very narrow range because people are waiting for fundamental signals to kick off; we still haven't seen that. It will probably continue like this until there is an agreement in the US to avoid the fiscal cliff," VTB Capital analyst Andrey Kryuchenkov said.
The metals market found some support in Friday's data pointing to growth in both China's vast manufacturing sector and US factory activity, but this still has to translate into an improvement in metals fundamentals. "We have got to see the stock shrinking in China. We have got to see premiums spiking, a narrowing contango at the front end of the curve in London and China, and that will not happen until the start of next year anyway, so the rest of the year will be dominated by fiscal cliff news," Kryuchenkov said. Solid growth from the United States will be crucial to reviving the world economy and driving demand for commodities in 2013, particularly with a debt crisis still grinding on in the euro zone.
China, the world's second-largest economy, will maintain steady economic polices in 2013, enabling it to manoeuvre in the face of global risks, while deepening reforms to support long-term growth, the official Xinhua news agency said on Sunday. China, which is the world's largest consumer of industrial metals, buys about 40 percent of global copper supply. Investors are now focusing on NY Fed manufacturing data later this session for further clues on the state of the US economy.
Three-month aluminium slipped to $2,105.50 at close of trade, from a last bid of $2,122 on Friday. The premium of its cash price against the three-month prices, meanwhile, rose to $38, the highest in more than 18 months. Tightness is being driven by a supply shortage over December-January, for which there are still some holders of short positions who cannot find metal to deliver.
The cash premium over the January contract, which now incorporates the December contracts that expire on Wednesday, rose to $70 at 1703 GMT from an opening price of $40. "The spread could potentially get wider. We haven't run down to the wire yet. The wire happens tomorrow at noon when people have to get out or deliver," a London-based broker said. The current squeeze is unlikely to have long-lasting impact on the curve.
"What normally happens is that this backwardation lasts for two or three days and then the situation dissipates," the broker added. Although LME aluminium stocks have hit successive record highs around 5.2 million tonnes over the past month, much of the metal is tied up in long warehouse queues and is unavailable to the market. In other metals, zinc, used to galvanise steel, closed at $2,090 unchanged from Friday's close, while battery material lead was bid at $2,300 up 0.2 percent from $2,296. Tin closed up 0.7 percent at $23,300, from $23,150, and stainless steel ingredient nickel was 1.5 percent lower at $17,605, from $17,875.