London Metal Exchange (LME) copper prices fell away from fresh all-time highs in open outcry trade on Wednesday, but few felt the rally was over yet despite increasing talk of a salutary correction. Aluminium shone out with a robust performance after a technical squeeze pushed prices to their highest in eight months.
Trade volumes remained illiquid, which typically increases price volatility.
"Each day of record highs makes it more likely that a sell-off will happen, but then there is still a great reluctance by investors to liquidate," a dealer said.
Three months copper finished the day down $65 at $3,905 and well off its earlier peak of $3,984 a tonne. Many traders were still looking for the red metal to take out psychological resistance at $4,000.
The price of copper, which is now up by just over a quarter since late last year, has confounded many who expected the such a lengthy rally to stimulate more production.
But world supply has failed to keep up with demand inflated by heavy buying from China.
The air must be getting very thin up there now, but who's going to dare to bite the bullet and short it?" Angus MacMillan, metals strategist at Bache Financial, said.
Although Zambian production problems may be resolved by the weekend after the country recently suffered energy difficulties, supplies are still disrupted in North America at Asarco and Falconbridge with each company gripped by labour disputes.
"As supply and demand fundamentals show little signs of easing back in strength, especially with seasonal activity picking up, our view is that prices remain vulnerable to upside spikes," Barclays Capital said in a daily report.
Aluminium jumped 1.8 percent to $1,954, up $22 and just off a peak of $1,972 a tonne - its firmest since March.
Traders said the move was linked to a technical squeeze rather than physical tightness.
The premium commanded for prompt delivery was volatile on Wednesday, flaring out to around $19, from $5 in the first rings and $10 in the pre-market. That conpares with a contango, or discount of $12 one week ago.
LME futures banding data for the October date showed there was one large short accounting for between 20-29 percent of futures.
Nickel fell to $12,675, down $25, while zinc was at $1,480, a loss of $15.
Canada's Inco Ltd said it sees a yearly world supply shortfall of 50,000 tonnes of nickel until 2009 due to limited supply and strong Chinese demand from China.
Lead was at $945, down $20, while tin was untraded but indicated at $6,550, down $50.