Copper edged down on Wednesday, as a rally driven by consecutive falls in inventories ran out of steam after stocks rose slightly, denting expectations of an improvement in demand. Three-month aluminium fell to close at $1,378 a tonne in official rings, from Tuesdays $1,373. The metal earlier rose to as much as $1,394, its highest since mid-February.
Tin fell to a days low of $9,850, its lowest since late December. Copper for three-month delivery on the London Metal Exchange was last quoted at $3,755/3,756 a tonne, versus $3,800 a tonne at the close on Tuesday, when it touched $3,862 a tonne, its highest in more than four months.
"The market overall still looks relatively dire looking at the inventory movements. Theres still a big surplus out there," said BNP Paribas analyst Michael Widmer. Stocks of copper, used extensively in construction, edged up 625 tonnes to 495,150 tonnes, in contrast to the fall of nearly 50,000 tonnes since late February. Cancelled warrants increased to 23,475 tonnes from Tuesdays 22,475 tonnes.
Continuous drawdowns in copper inventories and a rise in cancelled warrants - material earmarked for delivery - helped boost sentiment and drove copper higher over the last couple of weeks as it raised expectations of an improvement in demand. But some analysts warned the upside momentum might be waning as the pace of deliveries from LME warehouses slowed, and copper prices had run ahead of themselves in the rally.
The purchase in recent weeks of 300,000 tonnes of metal by Chinas State Reserves Bureau (SRB), to build up strategic stockpiles, has been another factor underpinning the price. Investment bank Macquarie said in a note copper could get a boost from more buying - estimated at between 600,000 to 900,000 tonnes for the rest of the year - by the SRB.
Metals are also taking their cue from equity markets, which were down in Europe by midday, hit by worries over Rio Tintos tie-up plan with Chinas Chinalco, while financial shares trimmed early gains after a UK regulators warning. "All eyes are on equity markets to see whether this rally is sustainable," said Andrey Kryuchenkov, an analyst at VTB Capital. "People think it is a bear market rally."
Aluminium bucked the trend, shrugging off another massive inventories jump of over 65,000 tonnes. Total stocks stood at a record high of 3.44 million tonnes. Traders said short position covering on a belief that demand had already bottomed helped boost prices. Battery material lead fell to $1,290 a tonne from $1,348, after hitting a four-month high of $1,370.
Zinc was last quoted at $1,190 a tonne from $1,195 while stainless steel-making ingredient nickel dropped to $9,875 from $10,050 a tonne. Tin was at $9,875 from $10,050 a tonne.