Copper bounced on Tuesday as confidence was boosted by news of stronger than expected import data from China, the world's top consumer of the metal. But analysts said investors were wary of buying at current prices and that scope remained for further profit-taking.
Copper for three months delivery on the London Metal Exchange closed up at $7,755 a tonne from $7,655 at the close on Monday when it slid three percent. "Chinese import figures are very supportive for copper," analyst Robin Bhar at UBS said.
"Base metals on the one hand are well underpinned by strong supply/demand fundamentals but on the other hand are a hostage to bouts of sudden risk aversion."
China's imports of refined copper, anode and copper alloy in April stood at 205,053 tonnes. That was down by 6.5 percent from March's record of 219,359 tonnes but exceeded expectations.
"This suggests only a modest slowdown from March and was well above our expectation, J.P. Morgan said in a research note. "Perhaps more startling was the record level of scrap imports which together argue that the internal Chinese copper market is well satiated in copper for the time being."
A strong demand outlook, falling stockpiles and worries about supply disruptions pushed copper prices to a 11-month high of $8,335 - less than $500 from the record high of $8,800 set on May 11 last year - earlier this month.
Some analysts think copper prices are too high, but others disagree. Investment bank Merrill Lynch said at the world mining conference it expects the commodity super-cycle to last for another five to 10 years. Nickel prices, which fell 3 percent on Monday, reversed those losses and gained to $50,600/50,700 from $49,050.
"Shortage of nickel all around the world is the reason," a trader said adding that short positions - bets on lower prices - were being squared. Stocks of nickel at LME warehouses fell 66 tonnes to 4,674, with available or on warrant stocks at 3,666 tonnes - around one day of global consumption.
Tight supply can be seen in the backwardation, the premium for cash material over three months, which has almost doubled to $3,250 since late-April, its highest in almost a month. In industry news, Xstrata unveiled an improved agreed offer for Canada's LionOre Mining International Ltd worth C$6.2 billion ($5.6 billion) on Tuesday, trumping a bid from Russia's Norilsk Nickel.
Xstrata stock was up nearly one percent. Other London-listed miners such as BHP Billiton, Kazakhmys and Vedanta Resources were all up between 0.6 and two percent on generally firmer base metal prices.
United Company RUSAL, the world's largest aluminium producer, began construction on Tuesday of the $2.3 billion Boguchany smelter in Siberia while its board member was quoted as saying that the company might list shares in November.
Aluminium edged up to $2,850 versus $2,830. Aluminium Corp of China Ltd (Chalco), the world's third-largest producer of alumina, said it expects aluminium prices to stay relatively high for the next six months on demand growth in China. Zinc eased $35 to $3,915, while lead gained to $2,085/2,090 from $2,075 and tin was at $14,125/14,150 compared with Monday's $14,000/14,050.
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