Copper futures were on the defensive in Asian trading on Tuesday after sliding from peaks set in London as weakness in oil, gold and other commodity prices encouraged fund operators to lighten positions in the metal.
Market liquidity was low in the middle of the London Metal Exchange annual conference, which kicked off the previous day, making dealers reluctant to take large positions.
"People still remember how prices tumbled last year so they are very careful about taking new positions," said a trader at a Japanese trading company.
"Falls in oil and other commodities are making funds nervous about chasing copper and other commodities on rallies, while they seem to be more keen about locking in profits ahead of the end of the year," he said.
The key three-month copper contract was trading at $3,888/$3,898 per tonne, down 0.5 percent from the London kerb close of $3,912 on Monday. It climbed as high as around $3,946 in London but drifted down in New York on profit taking.
Metal consumers, producers, analysts and traders are gathering in London for the LME dinner week, leaving some trading desks thinly staffed and making the market vulnerable to a repeat of last year's 16 percent price fall, dealers said.
A stronger dollar could make hedge funds keener to pull money out of commodities and invest in the US currency. The dollar hit a two-year high against the yen on Tuesday ahead of what is widely expected to be the Federal Reserve's 12th straight interest rate rise later in the day.
"We've seen copper getting capped twice around $3,950, once last week and again yesterday, so that level is becoming strong resistance," the trader said.
"Further gains in the dollar could induce heavy sales in copper by fund operators," he added. In Shanghai, the most active January contract rose 200 yuan from Monday's settlement to 36,610 yuan per tonne.