Copper slid on Tuesday after producer hedging, a firm dollar, profit-taking and rising inventories sparked a sharp sell-off, but further losses are likely to be limited due to funds waiting to buy at lower prices. Benchmark copper on the London Metal Exchange was down 0.6 percent at $4,861.5 a tonne in official rings. The metal used in power and construction hit a two-month high of $4,960 on Monday, a rise of seven percent since June 9.
Traders said higher prices had encouraged producers to take the opportunity to sell future output. "We've seen some specs taking profits, there's some fund interest in buying copper," a metals trader said, adding that the 200-day moving at $4,775 could be a magnet. A firm US currency makes dollar-denominated commodities more expensive for non-US funds; a relationship used by some funds to generate buy and sell signals.
Stocks of copper in LME approved warehouses rising 10,525 tonnes to 198,925 tonnes also prompted some selling. "Overall LME stock levels are low given the size of the market, that's why some people don't want to play copper from the short side," said ICBC Standard Bank analyst Leon Westgate, adding that demand was sluggish. "Central banks have said if the growth deteriorates massively they are ready to stimulate and money sloshing around the system tends to be a positive for commodity prices."
Central bank liquidity has previously found its way into riskier assets such as commodities and equities. LME copper stocks have fallen more than 45 percent since late August last year. Global copper consumption this year is estimated at around 22 million tonnes. Three-month aluminium fell 0.9 percent to $1,634 a tonne, zinc was down 0.2 percent to $2,114 a tonne, tin rose 0.3 percent to $18,075 a tonne and nickel ceded 0.6 percent to $10,130 a tonne.
Lead was down 0.9 percent at $1,830 a tonne. It rose to $1,882.5 on Monday, its highest since March 7. "Demand for lead should be relatively resilient given its substantial use in autos and industrial batteries. Global car sales are holding up well," Societe Generale said in a note. "Other supportive factors are the low LME lead inventory level and a broadly balanced market." Lead stocks in LME warehouses stand at 184,800 tonnes. Global demand this year is estimated at around 12 million tonnes.
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