Copper drifted lower on Wednesday, retreating from Tuesday's 20-month high as market players questioned whether prices around $8,000 were justified by supply and demand fundamentals. Copper for three months delivery on the London Metal Exchange ended the day at $7,945 a tonne, from $7,990 on Tuesday, when the metal used in power and construction touched $8,010, its highest since August 2008.
Robust US jobs, service sector and housing data lifted the demand outlook for base metals and pushed copper to Tuesday's highs. But traders and analysts, still concerned about the pace of economic recovery in the West and especially in Europe, said prices were exceeding the fundamental picture.
"Macro data is supportive, but isn't that already in the price?" said Jesper Dannesboe, senior commodity strategist at Societe Generale. "In our view, copper is a story for next year not this year," he said. Miner Rio Tinto seemed to support Dannesboe's view. The company said at the CRU/CESCO conference in Chile that it saw the market in "meaningful" deficit next year, with China probably forced to draw down strategic reserves to help meet demand.
"In the very near term, copper is very overbought because we've seen such a rapid move from $7,500 a tonne up to $8,000 a tonne," Dannesboe said. "Quite often it comes back down to do a little correction," he said. Stocks of copper at LME warehouses have declined since late February but traders said the market was still far from being tight.
"There's a bit of a stock overhang that needs to be reduced before we can get very excited," Dannesboe said. Stocks last fell 1,925 tonnes to 510,650 tonnes, reaching their lowest level since early January. Dampening sentiment, the rise in LME prices has effectively closed any arbitrage trading opportunities with Shanghai and some analysts worry this may curb Chinese imports. Shanghai prices have risen 4.8 percent so far this year, versus a rise of about 8 percent on the LME. "The arbitrage window with Shanghai is pretty much closed at the moment which is likely to limit China's refined imports in April," said Andrey Kryuchenkov, analyst at VTB Capital.
Aluminium dropped $13 from $2,365. Stocks of the metal used in transport and packaging rose 2,400, standing above 4.59 million tonnes and within reach of this year's record high above 4.6 million tonnes. Also pressuring dollar-priced metals, the US currency rose versus a basket of major currencies, with the euro down on uncertainty about a proposed aid deal to Greece. Zinc was at $2,400 from Tuesday's last bid of $2,448 and battery material lead was at $2,290 from $2,300. Tin was at $18,575 from $18,415 and nickel was at $24,725 from Tuesday's last bid of $24,800.
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