Copper was capped in ranges on Wednesday as liquidity dried up ahead of the end-year holidays and as worries about future demand dampened sentiment. "Base metals will continue to drift for the time being because they are friendless," Wiktor Bielski, analyst at Morgan Stanley, said.
"But as people come back after the new year, they will start to look at prospects." Copper for delivery in three months on the London Metal Exchange ended the day at $6,515 per tonne, from $6,380 at the close on Thursday.
Prices ticked up after earlier weakness, but market watchers believe the rise might not be sustainable. "The current bounce looks suspect unless we close above $6430 for two days running," said MF Global analyst Edward Meir.
In the previous session, copper dipped to $6,317, its weakest level since mid-March and $13 lower than where it started the year. If the situation persists to the end of the year, it will mark the first annual fall in prices since 2003. "This has been a major bear market for base metals this year," said analyst Stephen Briggs at Societe Generale Corporate and Investment Banking (SGCIB).
Copper and aluminium peaked in May last year, zinc and nickel are down over 50 percent since their record highs and lead has dropped some 35 percent since its top in October. One of the main reasons behind the falls has been an increase in LME stocks or the price, particularly zinc, has fallen in anticipation of a rise in mine production.
Copper stocks in LME warehouses rose for a third consecutive day, up by 275 tonnes to 195,925. They have doubled since July and are up by over 30 percent in two months. Even if copper prices were seen easing, analysts believed they would stay above historically low levels on strong demand and higher production costs.
"It would be sensible to expect some lower numbers next year, but I don't think they are going to be that much lower," Bielski said. "Supply isn't going to surge next year either."
China, Russia and India and other developing countries were seen driving 100 percent of the incremental change in demand. "Looking through the noise, while we may well see some slowdown in China and developing economies, its unlikely to be particularly marked," Bielski said. In the short-term sluggish demand prospects from the United States and also China dampened sentiment.Chinese importers are reducing yearly bookings for refined copper for delivery in 2008 amid fears that Beijing's economic tightening will crimp demand, traders said.
Worries over softer exports of copper tubes and pipes due to the weak property market in the United States were also cutting term imports. LME aluminium ticked up $17 to $2,428. The light metal, used in the automotive and packaging industries, has been seen as the laggard of the complex with upward potential as prices are trading just above the cost of production.
"Over next year as a whole ... aluminium is going to probably outperform, zinc is going to go even lower ... unless China does something dramatic to its tax regime," Briggs said. Zinc fell $7 to $2,308 after shedding 46 percent this year.
Lead gained $71 to $2,526 and tin was untraded but quoted at $16,150/16,160 from $16,000/16,025. Nickel, the key ingredient in stainless steel, was up $750 at $26,650. LME nickel stocks have doubled since the end of August to 47,412 tonnes as stainless steel producers have cut demand.
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