Industrial metal copper fell on Monday as stocks rose and the market failed to take comfort from key data on manufacturing activity in the United States. Copper for delivery in three months on the London Metal Exchange traded down to $6,800 per tonne at the end of the final open outcry session, compared with $7,000 at the close on Friday.
During early Asian trade the metal touched a two-week high of $7,075. Stocks of copper, widely used in the power and construction industries, rose 300 tonnes to more than 189,000 tonnes, for a gain of about 90 percent since July.
The US Institute for Supply Management's manufacturing index, released at 1500 GMT, showed factory activity slackened for the fifth straight month in November, though at a slightly slower pace than the market expected. "The ISM is a pretty good leading indicator of industrial production in the United States," BNP Paribas analyst David Thurtell said. A combination of slower economic growth and higher inventory levels may spell bad news for metals prices, analysts said.
"A slowing US economy and rising LME stocks are both headwinds that need to be reckoned with," said Edward Meir of MF Global in a report. The United States is estimated to account for about 15 percent of global copper demand. China uses about 25 percent and is expected by many analysts to offset lower US demand.
"Urbanisation in China is energy-intensive, and China's demand for oil and other commodities will likely remain high, possibly strong enough to keep pushing commodity prices higher on a sustained basis," Morgan Stanley said in a note.
Aluminium ended the day at $2,460 a tonne compared with $2,499 on Friday. Analysts expect prices to come under pressure in the short term as China ramps up production.
But over the longer term, prices of the metal used in packaging, transport and power are seen supported by strong demand and curbs on Chinese output to limit energy use and protect the environment. Traders said long-dated aluminium contracts started to creep higher over the last few days on fresh buying interest from investors.
"Fundamentals-driven funds are in at the long end of the aluminium market," one London-based trader said. Option expiry later this week was unlikely to create any fireworks in the aluminium market. But in copper, where the underlying contract has been much more volatile, the market was watching a number of outstanding contracts at the $7,000 strike.
Nickel traded down a touch at $26,800 from $27,095 on Friday. Earlier it saw a session high of $27,620 as stocks fell by a substantial 528 tonnes to 44,334 tonnes.
Prices have fallen since May's record high above $50,000 a tonne on forecasts of stainless steel production this year. Expectations that stainless steel producers would be gearing up production in the New Year have supported the metal, but doubts are growing. "The rebound in the global stainless cycle appears to be weaker than previously expected," Macquarie said in a note.
The realisation that some steel makers were using low carbon ferro chrome would also undermine nickel prices in the future, traders said. Ferro chrome prices hit record highs this month.
Tin was untraded but quoted at $16,650/16,700 from $17,075/17,100 on Friday, lead traded down at $2,955 from $3,055 and zinc was down at $2,490 from $2,590. Base metals markets are watching the BHP Billiton/Rio Tinto saga with interest as a merger could potentially give any new company greater pricing power. Diversified miner Rio Tinto was down 3.5 percent and BHP Billiton lost 1.9 percent.