Copper lost as much as 6 percent to reverse earlier gains on Monday after a source said China's State Reserves Bureau (SRB) could have suspended planned copper purchases and rising stockpiles increased worries about demand. Copper for three month delivery on the London Metal Exchange fell to a low of $3,196 a tonne. It closed at $3,250 down from $3,400 on Friday.
"We previously had a plan to build up copper reserves but it now seems we've had to suspend it," an official with knowledge of the Chinese government's plans said. "It's because of the price," he said, without elaborating. Prices of copper, used in power and construction have fallen about 60 percent since a record high of $8,940 in July 2008 on weaker demand.
However, they have risen about 4 percent so far this year, on speculative buying due to index re-weighting. "There have been reports that China is set to discard plans to buy copper for state reserves and that saw copper prices come back down," Leon Westgate, an analyst at Standard Bank, said. Copper stocks rose 5,925 tonnes to 369,500 tonnes - the highest level in five years.
"The impact of the re-balancing of indexes seems to have trailed off on some metals," David Wilson, head of base metals research at Societe Generale, said. "The weak fundamental picture has begun to exert its hold again." Tracking copper and weighed by demand worries, nickel closed at $10,725 from $12,175. The metal earlier shed 15.6 percent to a near two-week low of $10,275 and has slumped about 80 percent since its all-time high of $51,800 in May 2007.
Demand from stainless steel producers, the biggest users, remains weak and LME stocks are at the highest since July 1995. Lead fell 5.8 percent to a low of $1,135.50 before closing at $1,170 compared with Friday's close of $1,205. "Investors were largely covering positions both ahead of index re-weighting but also because of the speculation on whether SRB will be re-stocking and by how much," Gayle Berry, an analyst at Barclays Capital, said.
The DJ-AIG annually recalculates the weightings for individual commodities in its index. The latest reshuffle started on January 9 and goes until January 15. Reweighting in the S&P GSCI index is also under way and analysts at J.P. Morgan estimate the rebalancing will result in an inflow of $634 million into COMEX copper.
China's SRB, which has already bought aluminium and indium, is set to meet representatives of five or six large smelters for a zinc bidding round, part of its plan to buy base metals to help loss-making smelters and boost use, industry sources said. However MF Global said only 200,000 tonnes of zinc is expected to be bought, much less than the anticipated 400,000.
"The initially positive reaction in Shanghai trading has since withered, as participants are concluding that such action will not do much to dent a growing zinc surplus," it said in a note. LME zinc stocks rose 2,800 tonnes to 262,575 tonnes, the highest level since April 2006. Zinc fell 4.9 percent to a low of $1,232. It closed at $1,255 from $1,295.
Aluminium closed at $1,516 a tonne from $1,570. The metal used in transport and packaging has come under pressure in recent weeks on news of falling car sales data from auto makers. LME stocks jumped 15,650 tonnes to 2.42 million tonnes - its highest level since September 1994 and a reminder of weaker demand for the metal. Tin closed at $11,500 a tonne, unchanged from the last bid on Friday.