Copper slipped fractionally in early London Metal Exchange business on Thursday as fears about recession got the better of optimism about Chinese buying, analysts said. Futures for delivery in three months in the industrial metal, often seen as an indicator of real economic activity, closed at $7,190 per tonne, down $30 from its close on the previous day.
On Wednesday, it traded up to $7,450, its highest since November 7, driven by investors buying the metal in the hope that ongoing heavy use in China would offset any decline in Western world demand for metal. "After it hit the two-month high it found some willing sellers," UBS analyst Robin Bhar said.
The market remains very sensitive to the prospect of a recession in the United States, the world's largest economy. Investment bank Goldman Sachs said on Wednesday it expects the US economy to shrink in the second and third quarters of the year, a warning, which rattled metals and other markets.
Another sign of dampened sentiment in the market came from UBS. The bank lowered 2008 price forecasts for copper, lead, aluminium and zinc, saying it expects softening demand this year to result in poorer performance for the base metals.
"Copper, as it has been for the past few weeks, is dependent on macro economic environment. It rose on index rebalancing but that looks to be coming to an end in the next few days," an LME trader on the floor said.
The metal, used extensively in construction, fell steeply in the final quarter of 2007, like many other assets a victim of the risk-aversion caused by the global credit crunch, but has so far risen 8 percent in 2008. Other industrial metals slipped on Thursday.
Zinc ended the day down 2.8 percent or $69 at $2,430 per tonne, after falling as low as $2,367 during the session. China is rumoured to be scrapping a 5 percent tax rebate on LME-grade zinc exports soon, but Elliott said the market was growing worried that those plans may be delayed. He added that the supply-demand balance in the zinc market was not as tight as in other metals, which was also taking its toll on sentiment.
Nickel, key ingredient of stainless steel, lost 2.7 percent or $800 to $28,700. It touched $30,750 per tonne on Wednesday, its highest since November 19. Aluminium edged down $1 to $2,490 per tonne, while lead was $40 lower at $2,565 and tin shed $100 to $16,300.
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