Copper prices closed down 2 percent on Wednesday as investors briefly took their eyes off the U.S. dollar, focusing on China's eroding demand for the industrial metal.
China's refined copper imports fell by a quarter in August, from July, data showed. It was the second month in a row that the top copper consumer had cut back on demand - after record buying earlier in the year - and reflected upon rising inventories of the metal.
China may be holding nearly 1.2 million tonnes of refined copper stocks, or about 80 days of consumption, according to Antaike, a Chinese state-backed research group.
"The market is worrying that stronger OECD demand won't come in time to offset the slowdown in Chinese imports," Barclays Capital analyst Gayle Berry said, referring to demand for copper from developed countries.
"We'll see Chinese imports continue to fall over the next couple of months," she said.
Inventories of copper have been trending higher since early July at warehouses tracked by the London Metal Exchange, reversing constant falls seen earlier in the year. On Tuesday, LME copper stocks rose another 175 tonnes to 331,950 tonnes.
In Wednesday's session, U.S. copper for December delivery settled down 5.65 cents, or almost 2 percent, at $2.8080 a lb on the New York Mercantile Exchange's COMEX division. LME copper for three-months delivery closed down $144, or 2.2 percent, at $6,126 a tonne.
The dollar rose modestly while copper traded in New York and London, as investors braced for the outcome of a two-day policy meeting by the U.S. Federal Reserve.
The Fed said after the meeting that the economy was recovering and left interest rates unchanged at record lows. That pushed the dollar to a new year-low against the euro.
Copper prices have more than doubled since the lows of the financial crisis last year. The dollar's weakness had fueled much of the rally lately, as investors used stronger currencies to buy the cheapening dollar-denominated metal.
But with China scaling back heavy purchases now, copper prices may depend more on demand than currency factors, some analysts said. "The big push higher is now starting to settle into a trading range," Edward Meir, a metals analyst at MF Global in New York, said in his outlook for copper.
Some analysts disagree with that. "I think you still have a very nicely trending inverse relationship between the dollar and copper, barring the occasional break, and this rally has a lot more wind to it,"
said Michael K. Smith, president of T and K Futures and Options in Port St. Lucie, Florida.
That was also the view of Ralph Preston, analyst at Heritage West Futures in California. "The dollar looks very much like an apple ready to fall off a tree and I don't think there's anything that going to be more influential to copper prices in the near future than that."
Other key base metals traded on the LME also closed mostly down. Aluminium, used in transport and packaging, ended at $1,873 from $1,889. Stocks of aluminium at LME warehouses dropped 4,250 tonnes but stood just below a record high above 4.6 million tonnes.
Zinc closed at $1,903 from $1,946 and battery material lead ended at $2,240 from $2,289.
Tin closed unchanged at $14,650. The backwardation on the metal - a premium for cash material over three-month delivery - shot up to about $730, versus $260 on Sept.17.
