Copper fell on Wednesday from a 7-week peak hit the previous session as the dollar rose and investors locked in recent gains ahead of expected stimulus from central banks to revive a faltering global economy that has dented demand for metals. Three-month copper on the London Metal Exchange closed at $7,725 a tonne, down 1.2 percent from the closing bid on Tuesday, when it surged as high as $7,823, the highest since May 15.
Volumes were thin as US markets were closed for the Independence Day holiday. Copper has gained about 7 percent since touching a low on June 22, rebounding from a slump that saw losses of 17 percent from early April. Charts indicate LME copper may drop to $7,701 per tonne and Shanghai copper may retrace to 55,620 yuan per tonne, according to Reuters market analyst Wang Tao.
Aside from a brief pause on Monday when prices eased, shorts have continued to run for cover after a surprise agreement from euro-zone leaders last Friday and ahead of the European Central Bank (ECB) meeting on Thursday when economists believe it will cut interest rates in a bid to boost the region's ailing economy.
The short-covering rally may not have much steam left, analyst Gayle Berry at Barclays said in a note. "This rally could still take prices higher yet, but without an underlying improvement in the economic and political backdrops we believe gains could be difficult to sustain." Supporting expectations of an ECB rate cut, business surveys on Wednesday showed the euro zone's private sector downturn eased only slightly in June as companies slashed prices.
"Today we see a reaction to the feeling that things have gone a bit too far in the last few days. It was such a big rally and so quickly that the market needs to settle down a bit," Ivan Szpakowski, an analyst at Credit Suisse, said. In industry news, Indonesia has awarded mineral export permits to 22 firms since it introduced curbs on such shipments in May, a trade ministry official said on Tuesday, after the restrictions triggered panic buying in minerals including nickel and bauxite by Japanese and Chinese customers.
Nickel fell 2.1 percent to finish at $16,930 a tonne while aluminium shed 1.4 percent to close at $1,956. "Aluminium has been driven up, among other things, by sharply rising oil prices with which it shows a high long-term correlation. That said, the latest increase in price makes it less likely that the production cuts urgently needed to reduce the high supply surpluses will come anytime soon," Commerzbank said in a research note. "The still high physical premium paid by consumers on the LME price, especially in Europe and Asia, will go some way to easing the situation for aluminium smelters."
In zinc, 52,350 tonnes of fresh net cancellations of LME stocks appeared in exchange data after 113,925 tonnes were cancelled last Thursday. Traders said these were probably due to competition between warehouses for financing deals. Zinc shed 0.4 percent to end at $1,898 a tonne, lead lost 1.7 percent to close at $1,906 and tin fell 0.5 percent to $19,150.