Copper (HG-FT) retreated from a one-week high hit earlier on Tuesday as the U.S. dollar gained broad traction and a hefty rise in inventories weighed on the demand outlook.
Aluminum (AL-FT) inventories jumped more than 40,000 tonnes but analysts said metal availability remained tight, with a majority of warehouse stocks tied up in financial deals, lifting premiums in Europe and the United States.
Copper for three-months delivery on the London Metal Exchange rose to $7,608 (U.S.) a tonne, its highest since January 12, before easing to $7,516.50 a tonne by 1053 GMT, versus Monday's close of $7,500 a tonne.
“We've had a good start with copper but that seems to have faded. I suppose the stocks were disappointing,” analyst Robin Bhar at Calyon said.
Stocks of copper, used in construction, rose by 3,300 tonnes to 526,750 tonnes, reversing Monday's fall of over 2,000 tonnes, with total inventories hovering around 11-month highs.
Mr. Bhar said currency markets were an influential driver as the euro fell versus the dollar after a survey of German economic sentiment came in weaker than expected.
But analysts see limited downside, citing robust investment demand with bets on higher demand worldwide, particularly China, the top consumer of copper.
“We have seen some fresh investor flows last week and yesterday and I believe Chinese industrial production numbers later in the week could give another boost to prices,” Mr. Bhar said.
China's trade data, and other key economic indicators from the commodity consuming giant including industrial output, are due out on Thursday.
Investors have sharply increased their net speculative long positions in the copper market over the last week when prices dipped after a sharp rally that started in late December, Credit Suisse said in a research report.
Aluminum stocks rose 43,875 tonnes to 4.62 million tonnes, only around 15,000 tonnes below a record high hit in mid-December. Prices fell to $2,291 a tonne, from Monday's close of $2,303.5 a tonne.
But analysts dismissed the worries raised by a massive inflow of more than 40,000 tonnes in Detroit, home to one of the top automakers General Motors, saying auto sector data showed that recovery was on track.
“I don't think there will be a shortage of aluminum, of course, but the auto sector is generally improving worldwide, faster in China and more slowly in States and Europe,” analyst Dan Smith at Standard Chartered said.
“The available metal is very tightly held. The premiums in Europe actually moved up to $105 a tonne from $95 a tonne,” he said. Much of the stock of the metal, used in transport and packaging, is tied up in financing deals.
LME zinc rose to $2,500 a tonne, from Monday's $2,480 a tonne, while nickel was at $18,811 a tonne from $18,890 and having hit $19,375 a tonne, its highest in almost two weeks earlier.
Tin was at $17,825 a tonne from $17,980, while lead was at $2,472 a tonne versus $2,465.
