Currency-related selling and profit-taking put prices under pressure on the London Metal Exchange (LME) in Wednesday's open outcry business, but dealers said fund-related sales were being mopped up by trade buying.
Copper had touched a fresh 8-1/2-year high at $3,055 a tonne early on Tuesday but then fell as speculators cashed in profits, with a sharp bounce in the dollar adding to selling pressure.
Traders were trying to gauge whether the metal was in the first stages of a deeper correction after an inexorable rise from around $1,600 in September 2003.
Three months was untraded in the second morning rings, but was indicated at $2,984/85, down from Tuesday's afternoon kerb at $3,002 but off its earlier lows of $2,954.50.
"There is still continued trade demand. That is a feature even though there has been fund profit-taking...chiefly associated with the dollar and as the market got close to monthly chart objectives around $3,060," one trader said.
He added that the tone remained nervous nonetheless.
"There is a realisation at the macro end that some of the support for copper, and indeed all the metals, has been to some extent diluted recently. But offsetting that is copper's very own strong fundamental situation."
Continued sharp drawdowns in copper stocks - LME inventories are down 70 percent since peaking at just below one million tonnes in May 2002 - have lifted sentiment.
Analysts said global copper stocks were not critical yet, but if they continued to decline at their present rate, things could hot up towards the middle of the year.
LME copper stocks dropped 3,375 tonnes to total 275,225 on Wednesday - their lowest since August 16, 1998.
Angus MacMillan, analyst at Prudential Bache Securities, noted that around 200,000 tonnes of material was currently held in China by the State Reserve Bureau, which along with metal stockpiled by Codelco, was helping alleviate tightness for now.
"They're acting as a cushion to the market and obviously that cushion is very necessary as China is absorbing copper in all its forms insatiably," MacMillan said.
Aluminium drifted lower in subdued trade having failed to crack key resistance when copper was rallying. Three months traded at $1,711, down $14 on the previous day.
Forward price pressure had intensified in recent days, with producers and utilities locking in forward sales, Ingrid Sternby, base metals analyst with Barclays Capital, said in a daily research note.
In other metals, zinc traded at $1,140, down $9. Tin was untraded but indicated at $6,940/945, down $50, while lead was quoted at $883 from $892. Nickel was softer at $14,000, losing $300.
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