Copper (HG-FT287.25-5.15-1.76%) drifted lower on Thursday, as persistent rises in inventories reflected poor demand, while lead prices tumbled more than 7 per cent on expectations of a surplus in the market despite shutdowns.
Analysts say prices are vulnerable to a correction as copper has more than doubled since the start of the year, fuelled by speculative buying, restocking by the world's top copper consumer China and by signs of a recovery.
Copper for three months delivery on the London Metal Exchange was at $6,380 (U.S.) a tonne by 0921 GMT versus Wednesday's $6,415 a tonne close and compared with a session low of $6,352.25 a tonne.
“I am part of the school that says ‘I think the rally is overdone',” said Alex Heath, head of base metals at RBC Capital Markets. “People are saying this recession has bottomed and we do have the green shoots and we are recovering. What nobody can agree on is the pace of that recovery.”
The International Monetary Fund said on Wednesday that economic recovery may come three months earlier than forecast. But cautious investors are watching economic data closely for further clues on the health of the global economy.
On Thursday, the markets are awaiting U.S. jobless claims and an interest rate decision by the Bank of England.
In China, government data showed investment growth in the country's real estate sector accelerated sharply in August while prices and sales continued to rise.
That bodes well for copper, used largely in power and construction.
The U.S. dollar hovered close to its lowest in almost a year against a basket of currencies, helping limit the losses of copper as a weak U.S. currency makes industrial metals cheaper for local currency holders.
A rise of nearly 25 per cent in copper stocks since early July has been troubling investors, who are wary of a correction in the price, which rose to an 11-month high at the end of August.
“When you break down the rises, most of them come from warehouses in Asia. There's no demand and Chinese are not buying and the open interest has completely tumbled at the end of August,” said Andrey Kryuchenkov, analyst at VTB Capital.
In a sign demand remains sluggish, the premium for copper ready for use is now around $32.50 a tonne versus the usual premium of $80-$100, said a trader in Shanghai who expects demand to pick up from November for the end-of-year surge.
Battery making material lead was the worst performer among the metals, as it tumbled 7.5 per cent.
“The Antaike report has been weighing on the metal,” Mr. Heath at RBC Capital Markets said, referring to a report by China's state-run research body Antaike, showing the country's lead surplus is expected to grow this year.
The surplus is forecast to widen further in 2010 despite a wave of smelter shutdowns following poisoning incidents.
Aluminum (AL-FT0.86----%) was down $6 to $1,882. LME stocks of the metal, used in transport and packaging, slipped 4,900 tonnes but remained near record levels above 4.5 million tonnes.
Steel making ingredient nickel was at $17,860 a tonne versus Wednesday's $17,950 a tonne, while zinc was down at $1,947 a tonne versus $1,980 and tin edged lower to trade at $14,615 from $14,700.
