Profit-taking returned to a very volatile market late on Tuesday after the previous day's sell-off with worries about slowing demand and rising copper stocks looming in the background, traders said. "We are still in a phase of profit-taking," a London Metal Exchange (LME) trader said.
Copper for three-month delivery ended at $6,845 a tonne, down 1.3 percent, from Monday's $6,935/6,940 close. "At the moment, copper is struggling to make it back into that $7,000-$8,000 range because of the inventory position and the others have been weakened by what's happening on the copper side," analyst Jon Bergtheil at J.P. Morgan said.
Part of the reason for copper's fall is a belief that next year will see the market in surplus, stocks at LME-registered warehouses have risen to more than 150,000 tonnes from little more than 25,000 tonnes in July last year. Some of it is also due to fears that a global economic slowdown will cut demand for copper and other base metals, especially from emerging market countries such as China.
Chinese copper imports fell by more than 20 percent in the 10 months to the end of October. China's Strategic Reserve Bureau is still selling copper to the domestic market, which has dampened sentiment further, analysts said.
Copper hit a fresh four-month low of $6,770 a tonne on Monday, while lead fell about 13 percent to $1,470, the lowest since October 18. Traders said hedge funds on Monday had been short selling copper short - a bet on a lower price in the future - while taking profits on long positions in zinc and lead. Investors were watching wage talks between Chile's Codelco, the world's largest copper producer, and unions, which could be voting on a new contract by the end of the week.
More than 6,000 workers at Codelco Norte, the company's largest division, have to negotiate new wage and benefit deals before current contracts expire on December 31. Codelco produces about a third of all the copper from Chile. Lead closed at $1,500, after falling to $1,475 or 6.1 percent lower.
On Monday, lead closed at $1,570, down 6.3 percent after hitting a high of $1,755 on November 8. Lead's recent high was underpinned by falling LME stocks down by 63 percent to some 45,000 tonnes from 120,000 in June. Metal prices have swung widely over the past few days, especially in the zinc and lead markets with prices first rising to new highs before correcting sharply.
"Apart from relatively wide price swings, it has been interesting recently to note that correlation's between the various metals have broken down to some extent," analyst Michael Widmer at Calyon said in a report. Zinc ended at $4,140 compared with $4,245 on Monday when it hit $4,020, the lowest since October 25.
Zinc surged to a record high of $4,580 last week on fears of shortages, with LME stocks at their lowest levels since 1991. Three-month aluminium closed at $2,686, down from $2,714 on Monday. Tin ended at $9,800/9,850 from Monday's last bid at $9,900 and nickel closed at $29,200 from $29,850/29,900.