Copper prices were capped on Tuesday as inventories rose and the market worried about falling economic growth and demand while awaiting an expected interest rate cut in the United States. Lead for delivery in three months tumbled more than 5 percent to a six-month low of $2,410 a tonne at one point on the London Metal Exchange as the market priced in expectations of higher supplies from Australia.
Copper, used widely in the power and construction industries, narrowed earlier losses and closed at $6,819.5 a tonne nearly unchanged from Monday's $6,825. Stocks of copper in LME warehouses rose 2,725 tonnes to 191,200, to show a gain of more than 90 percent since the middle of July and nearly 50 percent since early October.
Part of the reason for rising stocks has been falling demand from the United States, where a housing market slump and subprime mortgage crisis have dampened activity in the construction sector.
"There's concern about growth next year and markets are reflecting that," said Adam Rowley, analyst at Macquarie Bank. "This is a seasonally weak period for demand as well which obviously doesn't help in an environment where physical markets are weak anyway." Rising supplies are reflected in the $64-a-tonne discount for cash material over the three-month contracts. That compares with a premium of $75 in early October.
Traders said activity was subdued ahead of the US Federal Reserve's decision on benchmark interest rates at 1915 GMT. Expectations were that the central bank would trim rates by a quarter percentage point to 4.25 percent to help ease the credit market crunch, boost confidence and economic growth. "Some people are talking about 50 basis points. It's unlikely, but if it happens, we could see a strong rally," a trader on the floor of the LME said.
However, he didn't think a rate cut would stop speculators short selling - a bet on lower prices - battery-material lead, which has lost nearly 40 percent since hitting a record high of $3,890 in October.
News that an Australian state environmental body said on Monday that Toronto-listed Ivernia's plan to export lead through Fremantle port was unlikely to cause any safety issues has spurred further selling this week.
"The market is clearly spooked by the prospect of Magellan's material coming back onto the market," J.P. Morgan said in a note. Lead ended lower at $2,520 a tonne from $2,540 on Monday, tin was quoted unchanged at $16,700/16,705 and aluminium closed at $2,460 from $2,462.
Zinc bucked the falling trend, closing at $2,430 from $2,380/2,385 and nickel also gained up $400 to $26,700. Elsewhere, base metals markets are tracking stock markets where M&A in the mining sector has become a major theme since London-listed BHP Billiton bid for Rio Tinto, which could mean greater concentration of pricing power. BHP Billiton was down 0.3 percent, Rio Tinto lost 1.8 percent, while Swiss-based Xstrata was up 2.24 percent after a British newspaper reported it was open to talks with potential suitors.
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