Copper eased on Friday to drift away from three-week highs hit in the previous session, as doubts resurfaced over whether demand is there to support further gains, given prices have nearly doubled this year. Copper for three-month delivery on the London Metal Exchange was last bid at $6,230 a tonne from $6,330 at the close on Thursday and compared with a session low at $6,201.
"Sentiment its a bit mixed at the time being, the demand picture is in view of improving in the in the next six months but perhaps not too significantly," said Michael Khosrowpou, analyst at Triland Metals. Despite a trickle of improving macro economic data doubts over demand remain, with LME copper stocks falling 250 tonnes to 346,600 tonnes but remaining near five-month highs.
Base metals prices also shifted lower, as the dollar firmed following comments on monetary policy from Federal Reserve Chairman Ben Bernanke. "Bernanke put the brakes on the market by supporting the dollar," said Alex Heath, head of base metals at RBC Capital Markets. He added: "We need to see a steady trickle of (stock) draw downs consistently coming out, which will give us an opportunity to say restocking and consumption levels have begun."
Also weighing on sentiment, the Internation Copper Study Group said in its latest statement that it expects the refined copper market to show a surplus of about 370,000 tonnes in 2009, as weak demand eclipses a decline in production. On Thursday, copper rose to three-week highs at $6,363 a tonne on improving US data and strong earnings and outlook comments from top US aluminium producer Alcoa.
But analysts remained cautious. "The figures were boosted by a major asset disposal and by strangely elevated aluminium prices," investment bank Fairfax said in a note. Investors are also keeping tabs on developments in Chile, where workers at the world's biggest copper mine, Escondida, are likely to accept an early wage deal offered by owner BHP Billiton and avert a strike.
But strike risks remain at other top mines including Spence, Escondida, Bingham Canyon, Andina and Chuquicamata. "Given the risks on the supply side over the next two months, we expect that there could be considerable price strength for copper," said Deutsche Bank in a note. "Into 2010 however we believe that market attention could once again focus on demand, which we expect will be very unimpressive. We believe that prices will likely weaken into mid-2010 as a consequence."
In other metals, aluminium ended flat at $1,909 a tonne. LME inventories in the metal, used in transport and packaging, dipped 7,950 tonnes but remained in touching distance of record levels above 4.6 million tonnes. Steel-making ingredient nickel ended at $18,750 from $19,495 while battery material lead finished at $2,249 versus $2,285.
Zinc ended at $2,033 a tonne from $2,080 and tin finished at $14,800 from $14,945. Investors in tin, used in electrical solder, remain concerned about supplies because of a dominant position controlling more than 90 percent of cash warrants on LME stocks. On investors' radar is LME week, the annual flagship event for the industry due to start on Monday.
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