Aluminium prices rose on Tuesday, supported by a short-term shortage of available metal, while copper dipped on persistent concern about expected additional supply. Benchmark aluminium on the London Metal Exchange, climbed 1 percent to close at $2,039 a tonne. Aluminium's forward curve is showing increasing signs of supply stress, with cash trading on Monday at its closest to parity against the benchmark three-month contract since December 2012.
The discount of cash aluminium to three months has sharply fallen to $1.25 a tonne from $44.25 in mid-June, indicating that nearby supplies are not as easy to obtain. "The upward move is likely being helped by tightness in the nearby spreads in aluminium, helping to deter fresh shorts and triggering some short-covering activity," analyst Leon Westgate at Standard Bank said in a note.
Aluminium has gained 16 percent since late May as investors bet that capacity cutbacks by producers and strong demand will result in the market moving to a deficit this year. Copper prices, however, dipped on concerns over the potential for excess supply. Three-month LME copper slipped 0.6 percent to end at $6,865 a tonne. Copper has rebounded from seven-week lows near $6,821 a tonne hit last week but momentum appears to be waning.
Putting pressure on copper prices are expectations that higher supply will push the market into a deep surplus. "We expect a more concerted move down as supply bottlenecks ease at a time of subdued demand growth," said Caroline Bain at Capital Economics, who expects prices to fall to $6,500 by the end of the year.
The copper market was expected to be in a 226,000 tonne surplus by the end of 2014, a Reuters poll in July showed, rising to 285,000 tonnes in 2015. Worries about the potential of rising copper supply and the health of China's economy weighed on the copper market despite positive US economic data on Tuesday showing US housing starts rebounded in July. In contrast, China's new home prices fell in July for a third straight month, with price declines spreading to a record number of cities, underlining a worsening property downturn that is increasingly dragging on the broader economy.
The property market is key to copper demand as the metal is mainly used in the power and construction industries. Copper, however, could get a boost if there were indications that US interest rates will remain low, said Naeem Aslam, chief market analyst at Ava Trade. "We also have the FOMC (Federal Open Market Committee) meeting minutes due tomorrow and as long as the Fed stays accommodative, we could see another push towards the upside for the metal."
Tin dipped 0.1 percent to close at $22,425 a tonne after Peter Kettle of industry group ITRI told Reuters Global Base Metals Forum that a forecast tin deficit was unlikely to materialise this year after increased output coincided with weak demand from the key electronics sector. Zinc closed up 0.9 percent at $2,302 a tonne, lead gained 0.5 percent to finish at $2,226 and nickel added 0.3 percent to end at $18,550.
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