Copper HG-FT fell from a 14-month high hit earlier on Thursday as the U.S. dollar bounced off multi-months lows and traders grew concerned the metal has priced in all the supportive news to date and run ahead of weak fundamentals.
Benchmark copper on the London Metal Exchange traded at $6,904.75 (U.S.) a tonne at 1030 GMT from a close of $6,985 on Wednesday. Earlier, the metal used in power and construction hit a high of $7,060, its highest since September last year.
“Speculators are moving the market, swinging on the back of the U.S. currency,” said Andrey Kryuchenkov, analyst at VTB Capital. “I agree copper is looking good for next year but right now we have so much copper stock ... I think we've got to correct from here. There's just no Chinese demand, they're not going to buy at these high prices.”
The U.S. dollar recovered in European trading hours after hitting 15-month lows against a basket of currencies. A stronger dollar makes dollar-priced metals more expensive for non-U.S. investors.
Some analysts said Dubai's move on Wednesday to restructure its biggest corporate debtor, Dubai World, and delay repayment on some of the company's $59-billion of liabilities, could be weighing on risk appetite to the dollar's benefit.
More specifically in copper, sentiment is being hit by rising inventory levels. Latest data showed copper stocks held in LME warehouses jumped 475 tonnes to total 432,075 tonnes, their highest since April this year.
“We continue to see inventory growth implying that prices are increasingly supported by investment demand, and less by supply demand fundamentals,” said Fairfax analysts in a note.
“However, the new year should see increased global industrial activity that should help to redress this balance, although whilst inventories remain high there is the possibility of a sharp correction.”
Trading conditions were thinner than usual with U.S. markets closed on Thursday for the Thanksgiving Holiday, which would also keep volumes light on “Black Friday”.
Buying by the world's top copper consumer, China, which has helped copper prices rise some 125 per cent this year, is starting to cool, but interest from funds remains strong, boosting copper.
On the downside, however, threats to supply have eased after workers at Antamina, a major copper pit in Peru, said Wednesday they had wrapped up negotiations for a labour agreement.
Stainless steel ingredient nickel was at $16,800 a tonne from $17,000, with LME stocks up 390 tonnes to total 133,446, a level not seen since early 1995.
“We've seen a slowdown in Chinese import demand and some slowdown in the Chinese stainless steel sector ... but that's a temporary move given current expectations for increased stainless steel production in 2010,” said Barclays Capital analyst Nicholas Snowdon.
Aluminum AL-FT , used in transport and packaging, was at $2,037 a tonne versus $2,047.
LME stocks rose 8,075 tonnes to 4.603 million tonnes, back near record levels of 4.629 million tonnes seen in September, but analysts said the market is not very concerned as most of the stock is tied up in financing deals.
Zinc was at $2,275 from $2,308, battery material lead was at $2,370 from $2,390, while tin was at $14,930 from $15,050.
