Copper eased on Wednesday, paring the previous session's sharp gains, with confidence rattled by weak export and manufacturing data from top consumer China and uncertainty over Greece's ability to implement tough reforms aimed at cutting its debt.
Benchmark copper on the London Metal Exchange (LME) closed at $8,435 a tonne in official rings, from Tuesday's close of $8,449 a tonne. Copper has gained more than 11 percent this year, partly buoyed by hopes demand from China - which consumes 40 percent of the world's copper - would pick up after the Lunar New Year in January. But demand from the commodity consuming giant has remained slack, raising worry that prices could retreat sharply.
Highlighting those concerns was preliminary data showing China's new export orders shrank in February, compared with expectations for a pick up after the holidays and a worrying sign of the impact of the euro area debt crisis. "The market has come off a bit after the manufacturing data and the fact that China has cut the reserve ratio suggests they are very concerned about the effects of the European debt crisis," said VTB Capital analyst Andrey Kryuchenkov.
"We need to see whether a proper resolution has been found for Greece and then the focus will shift on other countries such as Italy, Portugal and Spain... It will take some time to see how it goes," Kryuchenkov added. Goldman Sachs said it was lowering its 12-month commodity returns forecast to 12 percent from 15 percent, saying key commodities had rallied substantially heading into 2012. "However, these returns continue to justify an overweight allocation to commodities relative to other assets in a standard portfolio," analysts at Goldman Sachs said.
Highlighting thin demand in China, copper stocks in Shanghai warehouses hit their highest level in nearly a decade last week and analysts warned the country's imports were likely to remain weak until March. "Copper prices are likely to remain rangebound in the short term, before we see any improvement in demand," said a Shanghai-based trader. "But in the medium term, copper has a chance to break higher, with seasonal demand picking up and liquidity in China increasing."
The world's No 3 copper mine, Chile's Collahuasi, resumed mining operations after halting them following the death of a worker, a spokeswoman said on Wednesday. Expectations of a global copper production deficit supported prices but it was unclear when demand will rise, Germany's Aurubis, Europe's biggest copper producer, said.
Aluminium finished at $2,280 a tonne from Tuesday's close of $2,255 a tonne. Rio Tinto Alcan is asking Japanese buyers to increase the premium they pay on primary aluminium shipments to $132 per tonne for the April-June quarter, two sources involved in informal talks between the two sides said on Wednesday. Zinc, closed at $2,067 a tonne from Tuesday's close of $2,028 while lead ended at $2,148.50 from $2,117 a tonne. Tin, finished at $24,050 from Tuesday's close of $24,190 while nickel closed at $20,100 from $20,230.