Copper tumbled more than 5 percent to its lowest in two weeks on Thursday, tracking equity markets that turned lower after weak US data and on concerns the price does not reflect poor demand prospects. US stocks fell and European shares turned negative after bleak reports on housing and the labour market dented hopes that the economic slump was abating.
Copper for three-month delivery on the London Metal Exchange fell to $4,290 a tonne, its lowest since April 8 and closed the day at $4,342 a tonne versus $4,540 at the close on Wednesday. "Copper's following equities at the moment, but fundamentally I think it is too high," analyst Carl Firman at UK-based Virtual Metals said.
"There is an optimism that there is some form of recovery in China, tempered by concerns that this will be a red herring and things could be still bad." Prices of the metal used in power and construction have risen more than 31 percent so far this year, mainly due to an increase in cancelled warrants for copper at LME warehouses.
The material earmarked for delivery jumped to 69,175 tonnes on Wednesday - about 16 percent of total stocks - from 70,975 the previous day while total stocks fell 9,625 tonnes to 440,475 tonnes. "We are taking direction in the short term from the stock markets," one LME trader said. "The fundamentals are poor and are going to remain so."
Analysts believe stockpiling by China, the world's largest consumer, is behind the moves seen in cancelled warrants as they have been largely at Asian warehouses. "The market has latched onto the recent jump in China's copper imports as a sign that the worst may be over," Standard Chartered said in a note. "Copper looks set to push higher in the short term, mainly for technical reasons."
"However, we expect the rally to fade rapidly as we enter Q2 ... We do not believe that demand is strong enough yet to give much support to prices, and the temporary impact of restocking by China should start to disappear." Worries about supplies in the near term have pushed the metal into a $3 a tonne backwardation - premium for cash material over the three-month contract - compared with a discount of $40 a tonne at the end of March.
Aluminium was $17 softer at $1,448, despite LME inventories in the metal used in transport and packaging jumping 17,000 tonnes to a new record of 3.67 million tonnes. On Wednesday, aluminium cancelled warrants rose to 62,250 compared with 10,575 tonnes on January 12. "One can't be too positive with aluminium as long as inventories stay at massively high levels," said Marc Elliott, an analyst at Fairfax. Open interest lots climbed to over 746,262 on Friday from 748,117 the day before.
Steel making ingredient nickel closed at $11,350 from $11,520 while zinc ended at $1,417 a tonne from $1,460. Tin bucked the trend and rose to $12,500 a tonne from Wednesday's $12,150 while battery material lead was at $1,460 versus $1,470. Also at a premium are tin and lead, at $300 and $7 respectively, mainly because of dominant positions holding more than 80 and 90 percent of cash warrants on LME stocks.