Base metals buckled under further selling in London Metal Exchange (LME) trading on Wednesday as bullish sentiment faded and investment funds looked to depart the market, dealers and analysts said.
"The broad-based nature of this (slide in commodities) indicates that maybe what we are actually seeing is index selling which affects all commodities," analyst Nick Moore of ABN Amro said.
He was referring to funds, which invest in baskets of commodities and sell or buy when they hit certain levels. Fund buying of metals like copper and aluminium has helped to push up their prices in recent months to record levels.
"It is not just copper having a bad day, it is a number of commodity markets," Moore added.
"I think prices are running out of momentum - precious metals, base metals, softs, grains and oil."
LME copper, used in wiring and construction, fell to $4,720 a tonne, down from Tuesday's $4,758 close. Copper prices have lost some five percent since hitting a three-week high of $4,985 on Friday, touching a one-week low of $4,693 at one point on Wednesday.
As metals fell below moving averages, chart-based investment funds sold some of their holdings in metals, a ring dealer said after a brisk afternoon kerb session.
"It's system-based selling based on moving averages - the indexes are selling one month and buying another."
Though metals were under pressure, he said, there was support for copper around $4,700 and for aluminium at $2,300.
Analyst Ingrid Sternby of Barclays Capital earlier noted that the broad-based CRB commodity index had lost about three percent this week. The trigger had been a firmer dollar, an equities sell-off and rising bond yields.
Commodity markets also came under pressure ahead of the Bank of Japan's two-day meeting that began on Wednesday, at which it could end its unprecedented ultra-easy monetary policy. Investors were uncertain how such a move would affect markets.
Market analysts were uncertain whether the BoJ would maintain or change its five-year-old monetary policy at the meeting, which ends on Thursday.
Investors wanted to keep light positions in copper and other commodity markets as they were unsure how currencies and interest rates would behave after any BoJ decision.
LME copper inventories, which had dwindled to 31-year lows of 25,525 tonnes in the middle of last year, rose 1,675 tonnes to 125,725, their highest since June 2004.
LME aluminium stocks jumped another 7,575 tonnes to 793,625 tonnes, the highest since August 2004. Prices fell to $2,340 a tonne, down from $2,345. In other metals, zinc dropped to $2,225 from $2,250, tin was down at $7,700 from $7,800, while nickel slipped to $14,700 from $14,800. Lead was unchanged at $1,180.
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