Copper ended lower on Wednesday as a hefty rise in inventories weighed on prices and investors refrained from making big bets ahead of a key rate decision by the US Federal Reserve. European stocks were mostly higher with London-listed miner Vedanta Resources gaining 3.7 percent, but Kazakhmys and Xstrata were found among the 10 largest losers on the FTSE 100 index down around 0.5 percent.
Copper for delivery in three months on the London Metal Exchange closed at $7,720 a tonne versus Tuesday's $7,760, while aluminium gained $21 to $2,545. "What people assumed (was that) as we come into the fourth quarter we would see an erosion in inventories, particularly in the case of copper with China returning as buyer," said analyst Nick Moore at ABN Amro. "But the script of the play is not running as people thought and that is why they have become more bearish," he added.
Inventories across the base metals complex have been rising in October. Copper stocks added 6,225 tonnes on Wednesday, bringing the total to 166,975 tonnes - its highest since April.
The abundance of metal could be seen in spreads - the difference between the cash and longer term material. The backwardation in copper - the premium for cash metal over three-months - eased to $2/7 versus $150 in August. "The backwardation in copper virtually disappeared. At one point yesterday it was trading with about a $10 contango," Moore said.
Investment bank Goldman Sachs said this week it moderated its near-term expectations as the potential drag from weak US demand seems more durable than originally expected. The bank lowered its average fourth-quarter price forecast for copper to $8,000 from a previous $8,500 and for aluminium to $2,500 from $2,850.
But many were still upbeat on commodities. Investment guru Jim Rogers told a hedge fund conference on Wednesday to sell US investment banks, US housing stocks and the dollar and place large bets on China and commodities. Overall trading was subdued as investors did not want to make bets ahead of the Fed's key rate decision, due at 1815 GMT.
"There are people hesitant to trade at the moment," an LME trader said. "Many of them are hedged or capped their commodity positions in advance of expectations of a quarter-point cut, which I think is the general consensus."
The US central bank is widely expected to trim the benchmark interest rate by a quarter of a percentage point to 4.5 percent. US GDP unexpectedly rose to a 3.9 percent annual rate in the third quarter, marking the strongest quarterly growth since the first quarter of 2006 and easing investor worries. A report in the Wall Street Journal, saying a rate cut was not a sure thing, contributed to market uncertainty. "If they don't cut rates, commodities and equities will crack. Metals in some ways are ahead of the pack and have in part corrected, so copper may not see such a sharp move," said Edward Meir analyst at MF Global.
Three-months lead gained $77 or 2.1 percent to $3,660. The metal, which has more than double since the start of the year, has been shrugging off the hefty stock rises.
Tin was at $16,750, up $100 from Tuesday. Analysts said China's reduction of tin export quotas for 2008 by 10 percent was supported the price. Nickel was flat at $32,000/32,050 and zinc fell $25 to $2,820 after a massive rise in inventories.