Copper slipped on Thursday as optimism faded about stronger demand prospects in top consumer China, but some analysts expect prices to soon test the two-week highs seen earlier as lower supply leads to a more balanced market. Benchmark copper on the London Metal Exchange ended down 1.2 percent at $5,097 a tonne from an earlier $5,230, the highest since September 22.
Traders said copper prices were tracking the fortunes of mining group Glencore, which also started the day on a positive note, but was last down 0.7 percent. Activity at larger, Chinese state factories shrank for a second straight month in September, but the pace of contraction was slower than in August. "The data may be suggesting China is about to turn a corner, (and) that at some point we will see more robust demand growth rates," said Bart Melek, head of commodity strategy at TD Securities.
"At the same time, we're seeing the supply side respond to lower prices. There is a risk the supply/demand balance becomes tighter than the market is expecting." Chile's second-biggest copper mine Collahuasi, owned by London-listed Anglo American Plc and Glencore, said this week it planned to cut output by 30,000 tonnes. That is not a large amount in a market estimated at around 23 million tonnes this year, but it adds to recent announcements about output cuts and reinforces expectations of miners taking out more capacity.
"With a deficit next year, we expect to see a turnaround in prices back towards $6,000/t after the seasonal Q1 surplus period," Macquarie said in a note. "However, nervous producers are likely to hedge from $5,500/t upwards, capping much stronger upside." Three-month zinc was up 0.1 percent at $1,687.5 a tonne, lead fell 1.4 percent to $1,649, tin lost 0.6 percent to $15,430 and nickel slid 3.1 percent to $10,075 a tonne. Nickel alongside copper was a major beneficiary of short-covering on Wednesday due to the month- and quarter-end.
Nickel has come under pressure in recent months from over-supply and weak demand from Chinese stainless steel mills. Three-month aluminium was 0.7 percent lower at $1,566 from an earlier $1,598, its highest since September 22. Gains could be brief as aluminium too is an oversupplied market. "We expect market surpluses to persist over 2015-17," Morgan Stanley said in a note. "So in the absence of further supply cuts, we expect the price to be capped over the next two to three years. We have cut the long-term price 12 percent to $1,973/t."