Copper eased on Monday as uncertainty over the economic recovery caused industrial metals to pull back, with investors still concerned over the demand outlook against a backdrop of weak fundamentals. Copper for three-month delivery on the London Metal Exchange closed at $6,050 a tonne from $6,240 at the close on Friday, and compared with a session low at $6,000.
Prices were weak even in the face of positive US data. A guage of manufacturing activity in New York state moved into positive territory in July, suggesting the sector grew for the first time since April 2008. "People are suspicious about current pricing and want to see if it's sustainable, many big buyers are in a wait and see position," said Abe Ulusal, a futures broker at Mitsui Bussan Commodities.
He said the stronger dollar and weaker global stock markets were also weighing on copper, adding the metal used in power and construction had run up too high too quickly. A strong dollar makes dollar priced metals more expensive for non-US investors. Copper has nearly doubled since the start of this year, mostly due to strong buying from China, the world's largest copper consumer, and also on hopes for economic recovery.
On Friday, however, a weaker-than-expected report from the Reuters/University of Michigan Survey of Consumers ignited cross-market selling and cast doubt over an economic recovery. The cross-market downtrend continued on Monday after investors were unimpressed by data showing Japan's economy became the third G7 country after Germany and France to pull out of recession.
"It's a continuation from Friday... it was to be expected," said Gayle Berry, an analyst at Barclays Capital. "It doesn't mark the beginning of a turnaround." Copper traded in a $6 a tonne premium for cash metal over the three month price, indicating possible supply tightness near term.
In March, cash copper was at a discount of $40 to the three month price. However, copper stocks on the London Metal Exchange continue to rise, meaning fundamentals might be weakening. Latest data showed stocks rose 1,175 tonnes to 294,050 tonnes. Steel making ingredient nickel fell more than 6 percent to a low of $18,301 a tonne before easing back to close at $18,900 from $19,500.
Nickel inventories rose by 210 tonnes to 108,366 tonnes, but supply concerns remained with traders watching problems at Vale Inco's Canadian operations. In other industrial metals traded, aluminium closed at $1,960 a tonne from $1,990. LME stocks of the metal, used in transport and packaging, fell 5,075 tonnes but remained at near-record levels above 4.5 million tonnes. Aluminium has gained more than 25 percent this year despite record inventories.
Analysts say financing deals, which have tied up about 70 percent of LME stocks, are partly behind the surge. Battery material lead was last bid at $1,780 from $1,862, zinc was last bid at $1,770 from a last bid at $1,825 on Friday. Tin, used in electrical solder, was last bid at $13,905 from $14,450. Investors remain concerned about the scale of long or buy positions in the tin market, compared with the amount of available metal in LME warehouses.
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