Copper slipped on Friday as lacklustre demand from top consumer China weighed on the market, while a weak dollar and an improving macroeconomic backdrop prevented further losses. Three-months copper on the London Metal Exchange fell to $8,510 a tonne at 1655 GMT, down 0.6 percent from $8,565 a tonne on Thursday. It earlier touched a two-week high at $8,690.
The metal used in power and construction has traded in a range between around $8,400 and $8,700, as investors weigh an improved outlook for the global economy against weak copper demand in China. "Base metals markets will (continue to) be largely driven by macro factors and movements in the equity and currency market next week. But I don't see any factors to drive prices out of the current range unless we get some unforeseen news on the macro front," said Daniel Briesemann, analyst at Commerzbank.
Copper stocks at warehouses monitored by the Shanghai Futures Exchange rose for a third consecutive week to 227,276 tonnes by March 15, the highest level since July 2002, data showed. In contrast to Shanghai's continuously growing copper stocks, LME stocks fell every day since February 22 to 267,750 tonnes by March 14, the lowest since June 2009.
The premium of cash over the three months futures in LME copper, a structure known as backwardation, soared to $25, a level not seen since early February, 2011, suggesting tightness in the physical market.
"A forward curve in backwardation generally points to a tightening market. Although it might be too early to predict detailed numbers, we are likely to see a much higher supply deficit this year than many players currently think," Briesemann said. Copper has risen more than 12 percent so far this year, benefiting from a brightened global economic outlook and increased liquidity across markets as central banks around the world ease credit curbs to spur growth.
"We have to have a breather. I'm reasonably bullish on a six- to 15-month view, but we've had some big gains this quarter, (which) must be partly in anticipation of stronger demand later this year," said BNP Paribas analyst Stephen Briggs. The gains have come despite a shaky outlook on demand from China, and doubt is creeping in as to how much further prices can rally without a significant improvement in demand from a country that consumes 40 percent of the world's copper.
Freeport McMoran Copper & Gold Inc said first-quarter copper output would be down by about 10 percent because of labour-related problems at its Grasberg mine in Indonesia, the world's second-biggest copper mine, which will not return to full production until the second quarter.
In other metals, aluminium was untraded at the close but bid at $2,257 from Thursday's close of $2,251. Soldering metal tin ended at $23,400 from $23,800, zinc was at $2,078 from $2,090 and battery material lead was at $2,108 from $2,120. Stainless-steel ingredient nickel finished at $18,900 from $19,375. Weighing on nickel, data out earlier from the Lisbon-based International Nickel Study Group (INSG) showed the global nickel market was in a supply surplus of 17,000 tonnes last year.
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