Copper slid on Thursday as the market started to factor in slower activity in China ahead of the New Year holiday, but expectations of stronger imports by the top consumer in January and a weaker dollar helped to limit losses. Benchmark copper on the London Metal Exchange ended down 1.3 percent at $4,530 a tonne in official rings. The metal used in power and construction touched $4,595 on Wednesday, its highest since January 8.
Traditionally, China's industrial sector comes to a halt during the week-long Lunar New Year, which this year starts on February 8. The slowdown typically starts the week before. "It's difficult to see higher levels at the moment; metals trading activity will ease off because of the break," Citi analyst David Wilson said. "The arb is open, it was open through December. January copper imports will be pretty strong."
The arb, or arbitrage, refers to the difference between copper prices on the Shanghai Futures Exchange and the LME. When prices on ShFE are higher, the arb is open, allowing Chinese traders and consumers to buy on the LME. The open arb was one reason why Chinese imports of copper rose an annual 34.4 percent in December to 423,181 tonnes. Industrial metals are also likely to be supported by a softer dollar on expectations that the US Federal Reserve is likely to row back on the pace of interest rate rises this year.
A lower US currency makes commodities such as copper cheaper for non-US firms; a relationship used by funds that trade on buy or sell signals from numerical models. Three-month aluminium slipped 0.9 percent to $1,513 a tonne. The metal is under pressure from an oversupplied market, mainly because China has been ramping up low-cost capacity. "There will need to be relatively significant and sustained (aluminium) production cutbacks, and we expect a price remaining below current levels to achieve this," Macquarie said in a note.
Zinc was down 2.3 percent at $1,577 a tonne. The metal hit $1,616 on Wednesday, its highest since January 4, on expectations of tighter supplies fuelled by surging Chinese imports in December. China's imports of zinc, used to rust-proof steel, have shown fresh signs of life over the past three months, suggesting that local mine closures will sow the seeds of a price revival later in the year. Lead was untraded in the rings, but bid at an unchanged $1,669, tin traded down 1.0 percent at $14,250 and nickel lost 0.8 percent to $8,590 a tonne.
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