Copper had a volatile session on Wednesday, touching its lowest level in more than a week as worries over rising inventories and mounting debt snuffed out a rally inspired by a surge of new investor cash. Benchmark copper for three-month delivery on the London Metal Exchange closed at $6,945 a tonne from a close of $6,980 on Tuesday.
It earlier touched $6,874, its lowest level since November 30. Weighing on prices, stocks of copper in LME warehouses rose 5,200 tonnes to 458,500 tonnes, their highest level since late April. "What we're seeing now is a pretty consistent underlying surplus in the market," said Andrew Keen, an analyst at HSBC.
"Inventories have always mattered in metals markets. "It's partly the fact that demand is poor and hasn't come back and also that supply has been growing pretty steadily - there have been a lot of new mines commissioned," he added.
-- Copper stocks at highest since late April Metals markets have been rattled by a series of ratings downgrades with investors fretting over mounting debts which could derail economic recovery. Standard & Poor's cut its outlook on Spain to negative on Wednesday and warned of the risk of a debt downgrade, a day after Fitch Ratings cut Greece's debt rating and Moody's downgraded six Dubai-linked issuers.
Downbeat Japanese GDP data also hit investor confidence, coming on the heels of Tuesday's disappointing German industry output numbers and further quashing hopes of a solid rebound in metals demand. "We're having a slight spike in risk aversion," said Andrey Kryuchenkov, an analyst at VTB Capital. "We might come all the way down to $6,800," he added on copper prices.
Copper, used in power and construction, hit over 14-month highs at $7,170 last week and has more than doubled this year, as Chinese buying, new investor cash, speculators and improving macro data boosted base metal prices. "It's the same story as the last few months," said Herwig Schmidt, head of sales at Triland Metals. "The wall of money hitting the market - it's a tsunami. Each week is a minimum of $1 billion hitting it and it has to be placed somewhere.
"Some day, one day, they will all want to get out and I don't know what will happen then." In other metals, aluminium ended at $2,212 from $2,163. Used in transport and packaging, aluminium closed at its highest level since late-October 2008, as analysts said funds see the metal as being undervalued compared to copper. Zinc ended at $2,312 versus $2,327 and battery material lead at $2,281 from $2,289.
Tin closed at $15,250 from $15,150 and nickel at $16,570 from $16,150. Canada's First Quantum Minerals said it will buy BHP Billiton's closed Ravensthorpe nickel mine for $340 million, paving the way to revive production that could add nearly 3 percent to world supply. Looking ahead, market players are eyeing a slew of data, including industrial output, consumer prices and urban investment, from top metals consumer China due on Friday, for clues on whether a further pullback is warranted.