Copper fell on Tuesday as traders were reluctant to try to push the metal above Monday's five-week peak given slowing economic growth in China. Losses were limited, however, by signs of shrinking supply and as China pledged new policy support for 2016. Chinese share prices ended slightly higher as investors turned more positive about the prospects for the world's second largest economy after Beijing had unveiled on Monday plans for a number of fiscal and monetary management reforms in 2016.
These include making China's monetary policy more flexible, expanding the budget deficit, cutting taxes, and tackling overcapacity in industries such as metals. Beijing also vowed to take steps to expand aggregate demand. Metals investors nonetheless remain nervous about the industry-led slowdown in growth in the economy of the world's largest metals consumer. Three-month copper on the London Metal Exchange closed down 1.5 percent at $4,665.50 a tonne, having hit its highest since mid November at $4,749.50 a tonne on Monday.
The metal hit 6-1/2 year lows in November, however, and has lost some 25 percent this year "It's irrational pessimism. China (smelters) are talking about cutting production, the first agreement on TC/RC's was lower (for) next year and physical premiums are edging up again," Citi analyst David Wilson said. TCRCs - treatment and refining charges paid by miners to smelters for turning concentrate into refined metal - tend to fall when concentrate supply shrinks. China's Jiangxi Copper and Chilean miner Antofagasta Minerals last week agreed to 2016 treatment and refining charges 9 percent lower than this year's fees.
Also limiting losses in copper, industry data showed the global refined copper market was in a 26,000 tonnes deficit in September, with the surplus for the first nine months reaching just 35,000 tonnes. Elsewhere, data on Monday showed Chinese copper imports for the first eleven months were in line with last year, calling into question fears that demand in China has fallen sharply this year.
But on the downside, Peru's government said copper output should rise 65.5 percent in 2016 to about 2.5 million tonnes. Lead ended 1.5 percent lower at $1,700, reversing gains of nearly 3 percent in the previous session. Supporting lead, cash spiked to its highest since late April at $11.50 against the benchmark, highlighting a shortfall of supply on hand for immediate delivery.
LME data shows one dominant party holds between 50-80 percent of all LME exchange inventories. Zinc closed down 1 percent at $1,517. The refined zinc market outside of China moved to its first quarterly deficit since the second quarter of last year, Nicholas Snowdon at Standard Chartered said in a note. "This deficit is an very important shift in zinc market dynamics (if sustained) and could support higher prices in 2016." Aluminium edged down 0.4 percent to finish at $1,507 a tonne, nickel slid 2.7 percent to end at $8,645 while tin, untraded in the closing rings, was bid down 0.2 percent at $14,625.