Copper eased on Wednesday as investors booked profits from a four percent rally in the previous session and analysts were sceptical whether fundamentals would allow prices to move much higher. "I am still negative on copper...at the moment with the threats to demand it is still quite highly priced," analyst Andrew Keen at Sanford C. Bernstein told Reuters.
Copper for delivery in three months on the London Metal Exchange ended trading at $7,420 a tonne, down $55 from Tuesday when it gained $135. Contributing to the negative sentiment was the suspension of a mine strike in Peru that had been scheduled to begin on Wednesday, though a strike was still possible if a pay deal is not reached.
"Prompting some selling, is the announcement that Southern Copper Peru is suspending a walkout scheduled for later today," analyst Edward Meir at MF Global said in a note. Copper prices have risen by over 16 percent so far this year and are far off the 2007 low of $5,250 recorded in February.
Markets were still dominated by fears about the US credit market crunch's impact on the rest of the global economy and the market was looking for clues on how it could affect demand.
"We expect an imminent resumption in the copper inventory downtrend even if the US economy does slow sharply, since there are strong signals that Chinese import demand is picking up once again," a Barclays Capital report said.
The gradual increase in cancelled warrants - LME stocks earmarked for delivery and no longer available to the market - would underpin copper prices as demand was seen picking up. "Demand will pick up, cancelled warrants have risen every single day," analyst Michael Widmer at Calyon said.
Cancelled warrants stand at 8.5 percent or 11,700 tonnes of total inventories versus 2.5 percent at the end of last week. Total LME stocks have fallen to 137,900 tonnes from 192,600 at the beginning of the year, but stocks rose by some 40 percent since mid-July on a slowdown in demand. "August is a quiet month with a lot of people on vacation, I still think the copper market is roughly balanced," Widmer said.
Some support was seen after the euro hit an all-time high against the dollar at $1.3910 on expectations of a Federal Reserve interest rate cut next week. Investors are weighing the effect of a weaker greenback, which makes dollar-denominated assets cheaper for holders of other currencies, against the risk of a significant slowdown in the world's largest economy.
"The weaker dollar is exerting some upside pressure but all this can change if we get more bearish statistics on Thursday and Friday," MF Global's Meir said. On Thursday, initial and jobless claims data is due and Friday sees August retail sales data and industrial production. European equity markets were steady, with the FTSEurofirst 300 index of top European shares up 0.22 percent after an across asset rally in the previous session.
Diversified miners Rio Tinto and BHP Billiton weighed on the London Stock Exchange, down 0.5 and 1 percent respectively. LME aluminium was down $20 at $2,440, having gained 1.6 percent on Tuesday, while zinc fell $5 to $2,755. LME zinc has fallen by about a third this year and aluminium has shed over 12 percent. "Aluminium and zinc are both suffering from the same disease - lots of capacity in China," a dealer in Shanghai said.
Lead was up slightly at $3,080 versus $3,025/3,030, while tin rose to $15,200 from Tuesday's closing quote of $15,150/15,200. Steelmaking additive nickel was down $50 at $27,150.
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