Copper extended its downtrend on Thursday, touching its lowest in nearly eight weeks, after another big rise of inventories highlighted that the market currently has healthy supplies. On-warrant copper inventories in warehouses certified by the London Metal Exchange - those not earmarked for delivery - jumped by 25,700 tonnes on Thursday and have surged by 75 percent over the past three weeks.
That showed that a 12 percent rally in LME prices in December was not supported by the underlying fundamentals, some analysts said. "This correction has been needed to put metals prices in line with the fundamentals, which are not bearish but also not that bullish," said Gianclaudio Torlizzi, Partner at consultancy T-Commodity in Milan.
"Copper has broken its $6,860 support level, so there's still space for more of a correction lower. I don't think we'll go much lower than $6,500, which would be a good buying area." LME copper closed down 0.5 percent to $6,845 a tonne, recovering after hitting $6,809, the weakest since Dec. 15 and extending sharp losses from the previous session when prices fell 2.8 percent.
Prices also pierced support at the 100-day moving average near $6,883, damaging copper's technical picture. Helping to cushion the falls was data showing that China's trade machine kicked up a gear in January after stumbling the previous month, with exports and imports both growing much more than expected.
China's unwrought copper imports fell for a second straight month in January as winter restrictions on the construction sector and high domestic production rates continued to crimp demand for metal from overseas. LME zinc gained 1.2 percent to end at $3,422 a tonne, supported by continued tight supplies. Zinc smelters are set to accept lower fees for processing concentrate into metal when annual contracts are hammered out next week at a conference in California, as a crunch in mine supply stretches into a third year.
Zinc has the biggest long speculative position on the LME, accounting for 27 percent of open interest, Alistair Munro at broker Marex Spectron said in a note. Battery material lead rose 0.7 percent to finish at $2,524.50 a tonne, erasing losses after touching $2,483, its lowest level since Dec. 22.
Lead has formed bearish chart patterns recently, Staphanie Aymes, head of technical analysis at Societe Generale, said in a note. "A larger correction is on the cards. Lead should now head towards $2,463." LME aluminium gained 0.6 percent to close at $2,170 a tonne, bouncing after hitting $2,148, its lowest since Dec. 22. Nickel shed 0.4 percent to $13,125 while tin fell 1.3 percent to $21,325.