US copper futures sank to six-week lows at the open on Wednesday after a hefty build in London warehouse stocks bruised investor confidence and provided additional pressure to the recent downtrend, analysts said.
"A lot of underlying support that the lower inventory levels at the London Metal Exchange (LME) have offered has come out of the market," said Eric Wittenauer, futures analyst with A.G. Edwards.
"Comparatively, inventories remain low but they have definitely eased off of the recent lows that we have seen," he added. Copper for September delivery was down 6.00 cents, or 1.7 percent, to $3.4465 a lb by 10:39 am EDT (1439 GMT) on the New York Mercantile Exchange's COMEX division, retreating from an overnight peak of $3.52 and falling as much as 10.15 cents to $3.4050, its cheapest level since June 28. Futures volumes were estimated at a healthy 11,422 lots by 10:00 am.
Copper stockpiles in warehouses monitored by the LME jumped 8,675 tonnes, or 8.2 percent, to 114,275 tonnes on Wednesday - their highest in six weeks. COMEX stocks were unchanged at 21,655 on Tuesday. "Seasonal stock increases should come as no surprise," John Reade, head of metals strategy with investment bank UBS said in a daily comment to clients, adding however, that the magnitude of the move could shake the resolves of some base metal longs.
Meanwhile, the Federal Reserve's decision on Tuesday to leave benchmark US interest rates steady at 5.25 percent, while acknowledging that tightening credit conditions have raised downside risks to the economy failed to have a significant impact on copper prices.
"In terms of it playing out in the copper market thus far, I don't think we have really seen a reaction to it for the most part," Wittenauer said. Another bearish development hanging over the copper market was news that a Mexican industrial relations board declared a strike at Grupo Mexico's giant Cananea copper pit and two smaller mines as illegal. However, the union vowed not to return to work.
Meanwhile, strike threats by union workers at Peruvian units of Southern Copper, one of the world's top copper producers, continued if the company does not agree to raise wages this week.