Industrial metals fell on Monday, with rising London Metal Exchange stocks dampening sentiment, while investors digested the impact of last week's earthquake on China's metal production.
Copper for delivery in three months, a popular alternative investment and a key gauge of underlying economic activity, closed at a quoted $8,315/8,320 per tonne, down $124 after Friday's 1.5 percent rally.
"It's a bit of setback from Friday," said analyst Edward Meir at brokerage MF Global. "The stock numbers were pretty sobering, and the negative elements in the market are holding sway."
LME stocks rose by 1,500 tonnes to 122,725, up 13 percent during the past two weeks. However, inventories are down 38 percent since the start of the year, with prices up 26 percent during the same period.
"We continue to believe that a pullback to the $7,800-$8,000 per tonne level is probable given that demand within China is quite soft and domestic prices are not recovering to the same extent as LME prices," analyst Michael Jansen at J.P. Morgan said in a report. LME aluminium fell $43 to $2,995, retreating from a three-week high of $3,071 a tonne on Friday.
Rising aluminium inventories capped prices, with 10,425 tonnes coming in, totalling 1,039,550 in LME warehouses. Even as analysts were assessing the impact of last Monday's earthquake on China's metals industry, ample supplies in the domestic physical market could cap prices. "There are so many things going on with China and that makes it incredibly difficult to understand what the underlying picture is," said Daniel Smith, an analyst at Standard Chartered.
He said he expected demand to slow during the year, but, given that China was critical as both a producer and consumer of metals, it was difficult to have a short-term view.
"We would maintain our bearish medium-term view on a lot of these markets," he said, adding that smaller consumer demand for aluminium and copper in China indicated a soft outlook. Zinc closed at $2,288 per tonne, down $77, or more than 3 percent.
Stocks in LME warehouses have risen by about 45 percent so far this year to 128,575 tonnes, of which 5,075 came in today. Both zinc and aluminium output had been affected, but it appeared that the scale of losses in both markets was small.
"Our estimation of total losses in zinc output is around 20,000-30,000 tonnes, equating to less than 1 percent of Chinese output as a whole," a Macquarie Bank report said. This minor cut was unlikely to significantly reduce the surplus Macquarie forecasts for 2008, the report said. Lead fell $115 to $2,230 per tonne.
LME stocks have risen to 64,350 tonnes, up by over 40 percent since the start of this year. Nickel fell $325 to a closing quote of $26,075/26,100 a tonne.
"The earthquake had quite a significant impact on the nickel pig iron producers, so while I am quite bearish on nickel overall, that would help to support prices," Standard Chartered's Smith said. Nickel pig iron is sometimes used as a substitute to nickel.
Tin fell $600 to $24,000/24,050. The metal, mainly used for soldering in electric appliances, hit a record high of $25,500 on May 15, gaining nearly 50 percent so far this year. Several markets in Asia were closed on Monday for public holidays, including Singapore, India, Thailand and Malaysia.