Many markets rallied after news emerged on Monday night that differences over resolving the fiscal cliff had narrowed significantly as President Barack Obama made a counter-offer to Republicans that included a major change in position on tax hikes for the wealthy.
But three-month copper on the London Metal Exchange gave up its gains in morning trading and was bid at $8,024 per tonne, down 0.5 percent. Copper closed nearly flat on Monday. "The equities reacted favourably last night to this in New York, and logically one would assume that this would be a positive for commodities as well," said Stephen Briggs, metals strategist at BNP Paribas in London.
"But because base metals have been faring pretty well in the last few weeks, there may be less mileage for them than there might be for some other sectors." Signs of a revival in economic growth in top consumer China, which accounted for 40 percent of refined demand last year, have also boosted copper in recent weeks. Further support was expected following the approval on Monday by US regulators of J.P. Morgan Chase & Co's controversial plan to launch a copper exchange-traded fund backed by actual metal stockpiles.
Stocks for the ETF will be held in non LME-registered warehouses, where costs are cheaper, with Shanghai one of the suggested locations. But the boost from the announcement could take some time to be felt in the market. "We could still be some months away from the prospectuses being posted out and investors starting to buy, so it looks a bit of a slow burner," Robin Bhar, an analyst at Societe Generale, said.
Bhar added that investors were sitting out until the so-called "fiscal cliff" impasse was resolved. "The rally for the moment is probably curtailed by a lack of any risk appetite until the fiscal cliff gets sorted out," he said. "The prospects for next year are looking pretty good. China is rebounding and if the fiscal cliff can be resolved quickly ... everything bodes well for a continued recovery in the US"
A market battle in aluminium on the LME between a major long holder and shorts sparked hefty deliveries of stocks into warehouses, which erased heavy premiums for cash material seen in recent days. Cash spiked to a premium of up to $47 a tonne over the benchmark three-month contract on Monday, the strongest since February 2007, but then flipped to a discount of $15 on Tuesday.
Analysts said the move back into its usual contango structure, in which cash prices are lower than longer-dated ones, came after short-holders delivered aluminium into LME warehouses. LME aluminium stocks have jumped by 64,325 tonnes over the past two days. "There are millions of tonnes of unreported inventory of aluminium that have built up in the last five years, so there's plenty of scope for more material to hit the market," Briggs said.
The increase in LME stocks appeared to weigh on three-month aluminium, which fell 0.4 percent to $2,098 per tonne in official trading. Other metals fared better. Tin, which many analysts expect to be the only base metal with a deficit next year, gained 1 percent to $23,525 per tonne at the close of official trading, the highest in eight and a half months. Zinc closed at $2,090 a tonne, unchanged from Monday's close. Lead finished up 0.8 percent at $2,319 a tonne and nickel climbed 1.1 percent to $17,800.