Industrial metals tumbled on Thursday, with copper dropping as much as 3 percent as doubts about the pace of recovery and persistent increases in inventories triggered a sell-off. Analysts have been cautious about the rally that has seen copper's price more than double since the start of the year and have repeatedly warned that the market is due for a correction as the fundamentals do not justify current levels.
A report showing China's lead market in surplus despite smelter shutdowns in the country further weighed on lead, sending prices down more than 12 percent. Nickel and zinc prices also dropped more than 5 percent amid the broad sell-off in industrial metals. Copper for three month delivery on the London Metal Exchange closed at $6,294 a tonne, versus $6,415 a tonne at the close on Wednesday. It earlier hit a session low of $6,212.
The red metal pared some if its earlier losses after US data showing the number of new jobless claims fell over the last week, but remained sharply lower on the day. "It is just a sense that maybe things had got a bit overcooked," said Stephen Briggs, analyst at RBS Global Banking and Markets. "There is going to be a debate for a long time about the pace of recovery," he added.
"Metals had been pricing in the best of all possible worlds so there are always going to be periods where people have to stand back and say 'hang on, are we pricing in a bit too much'." A rise of nearly 25 percent in copper stocks since early July has been troubling investors, who are wary of a correction in the price, which rose to an 11-month high at the end of August.
"When you break down the rises, most of them come from warehouses in Asia. There's no demand and Chinese are not buying and the open interest has completely tumbled at the end of August," said Andrey Kryuchenkov, analyst at VTB Capital. In a sign demand remains sluggish, the premium for copper ready for use is now around $32.50 a tonne versus the usual premium of $80-$100, said a trader in Shanghai who expects demand to pick up from November for the end-of-year surge.
Battery making material lead was the worst performer among the metals, as it tumbled to close at $2,120 a tonne versus Wednesday's close of $2,405. It earlier hit a one-week low of $2,100. "The Antaike report has been weighing on the metal," said Alex Heath, head of base metals at RBC Capital Markets, referring to a report by China's state-run research body Antaike, showing the lead surplus is expected to grow this year and widen further in 2010.
Aluminium closed at $1,854 from $1,888. LME stocks of the metal, used in transport and packaging, slipped 4,900 tonnes but remained near record levels above 4.5 million tonnes. Steel making ingredient nickel closed at $17,200 a tonne versus Wednesday's $17,950 a tonne, having earlier hit a 6-week low of $17,000. Zinc closed at $1,920 a tonne versus $1,980, while tin was untraded at the close but was last bid at $14,150 from $14,700.
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