Copper and aluminium ended with losses of over two percent on Wednesday as the market turned its focus back to global economic slowdown and falling demand, analysts said.
Aluminium futures fell to $2,780, well off a session peak of $2,847 and down from $2,841 on Tuesday. It hit a six-month high of $2,851 the previous day, after talk of a squeeze ahead of option expiry, but selling accelerated as the options lapsed below a key level the market had been monitoring.
Benchmark copper futures on the London Metal Exchange closed at $6,990 a tonne, down 2.6 percent, from $7,175. "We've had a number of data points out of the US indicating weaker growth," Jim Lennon, analyst at Macquarie Bank said, adding that last week's survey of US manufacturing activity showing a contraction was one of them.
Investor would eye the US labour market report on Thursday for further clues about the US economy. "The market probably wants to go lower, but it can't (because) there is strong concern about potential (production) delays," he said.
Possible production disruptions stemming from the start-up of contract negotiations with more than 6,000 workers at Chile's Codelco Norte mine could underpin copper prices.
Codelco Norte, the largest division at Chile's state-run Codelco, and workers at three unions have until December 31 to negotiate a new three-year contract or face a strike early in January. A large number of call options to buy three-month aluminium futures at $3,000 a tonne expired on Wednesday.
These contracts - nearly 10,000 - have been under the spotlight in recent days and traders had expected the holder to try and ramp up the price of aluminium futures to bring it nearer to the strike price.
"It was always so well flagged, very often when something becomes as public as that it ends up being a bit of non-event, Stephen Briggs, economist at SG Corporate and Banking.
"The option story added an extra piquancy. (But) the supply side of aluminium has been growing pretty rapidly. The aluminium industry today is only operating at about 90 percent capacity."
The premium for cash metal above the three months price eased to $1.0 from $10 on Monday. Last week, cash was trading at a discount of $20.5 to the benchmark futures contract and dealers would watch to see if the recent nearby backwardation would be sustained.
Nickel was untraded at the close, quoted at $34,200/34,300 a tonne, down from an earlier session high at $34,450 and compared with Tuesday's close at $34,250. Traders expect nickel to rise further, beyond Tuesday's record high of $34,500, as the market frets about production delays and low available stocks at LME warehouses - around 4,100 tonnes and little more than one day's global consumption. "Physical shortages are getting more acute in certain commodities, despite the fact that growth is weakening," Lennon said "You are seeing inventories continue to run down."
Lead closed at $1,725 a tonne from $1,735 a tonne on Tuesday, when it hit a new contract high of $1,758 a tonne on rising winter demand for use in batteries. Zinc slipped to $4,430 from $4,505, while tin bucked the downward trend, closing at $10,750 from $10,600.
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