Copper prices fell on Tuesday as investors cashed in gains after the previous session's rally on concerns that a surge in base metals prices over the last month had left markets overstretched. Copper rose 2.8 percent on Monday as a slide in the dollar prompted computer-driven fund buying, but the metal has failed to hold those gains.
Three-month copper on the London Metal Exchange (LME) closed down 1.1 percent at $5,884 a tonne. The metal rose 23 percent last month to reach its highest since June 2015 at $6,045.50 a tonne. "We do think (the price rise) has gone too far," Capital Economics analyst Caroline Bain said.
"You only have to look at the levels of investor buying to see that quite a lot of these rallies have been based on euphoria rather than grounded in fundamentals. We think we will see some profit-taking, inevitably, as we end the year." Base metals have benefited from signs that the Chinese economy is improving, and have rallied sharply since Donald Trump's US election victory, with some betting that his commitment to infrastructure spending would support demand.
However, with the details of Trump's plans still unclear, and even big improvements in US demand likely to have little effect on overall global consumption, this factor is seen as overblown. In supply news, Kazakhstan copper firm Kaz Minerals said its new copper project at Aktogay would deliver its next phase of output early in 2017 at a lower cost than expected.
Zinc, which also sank in earlier trade after rallying 3.7 percent on Monday, reversed losses to close up 1.2 percent at $2,800 a tonne. Zinc is the best-performing LME metal this year, having surged almost 72 percent since January 1, although it has dropped back 8 percent from last month's nine-year peak of $2,985.
Aluminium closed down 1.5 percent at $1,709 a tonne. A Chinese metals industry association warned of a sharp drop in aluminium prices in the new year, Commerzbank said in a note, after recent gains boosted the pace at which idled production plants were restarted, and encouraged new capacity. Lead closed up 0.7 percent at $2,336.50 a tonne, while tin ended the day 0.2 percent lower at $21,125 a tonne. Nickel closed down 0.3 percent at $11,610. "We think that the recent advance has gotten somewhat long in the tooth in a number of metals and we could see a modest contraction set in," INTL FCStone said in a note.
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