LONDON — Copper fell from a three-month high on Thursday, as more gloomy economic data dented its demand outlook despite depleting inventories of the construction metal.
A fall in copper inventories over the past week and a rise in material earmarked for delivery had suggested there could be an improvement in demand, particularly from China and pushed the metal to its highest in more than three months on Wednesday.
Copper for three-months delivery on the London Metal Exchange was at $3,697 (U.S.) a tonne by 116 GMT compared to its close of $3,745 a tonne on Wednesday, when it rallied over 6 per cent to touch $3,785 a tonne, its highest level since November 27.
“Cancelled warrants has been so much the story in the last few days,” said analyst Stephen Briggs at RBS. “But they were down today rather than up and that breaks the trend people were excited about.”
LME copper stocks fell a small 825 tonnes to 525,200 tonnes after having dropped by 3 per cent over the past week. Cancelled warrants fell to 60,775 tonnes from Wednesday's 64,400 tonnes, marking the first drop in over a week.
The major question in the market is whether the rise in cancelled warrants – material earmarked for delivery – is due to a start of an improvement in demand from China or a result of an arbitrage opportunity – buying metal cheaply on the LME to sell at a profit in China.
“I think the market recognizes that a lot of it is to do with the SRB rather than improvement in global underlying demand for copper,” Mr. Briggs said, referring to possible buying by China's State Reserve Bureau.
“I think that should cause some caution,” he said.
Li Yihuang, president of Jiangxi Copper group, said China's copper consumption will rise in 2009 but growth will slow from 2008. He said the consumption growth should “very closely” track the country's gross domestic product growth.
The world's top consumer of copper unveiled plans to boost farm support spending by 20 per cent this year and allot $26-billion to bulk up its reserves of commodities from wheat to oil to steel in order to maintain production and smooth out prices.
China's Premier Wen Jiabao said China will achieve 8 per cent growth this year, but outside China, economic data continued to point to a deep recession.
A collapse in exports, and plunging household demand and investment combined to produce the deepest ever quarterly economic contraction in the euro zone in the last three months of 2008, data showed.
In industry news, the world's eighth-biggest copper producer Kazakhmys said it planned to reduce output this year to around 300,000 tonnes from 343,000 tonnes in 2008 to cut costs.
It plans to hedge – or sell in advance at fixed prices – 7,500 tonnes of copper each month for the rest of 2009 to guard against copper falling below $3,000 per tonne.
Aluminum fell to $1,310 a tonne from $1,345 a tonne, with inventories posting another rise of 4,700 tonnes, bringing the total amount to 3.26 million tonnes.
Zinc firmed to $1,233 from $1,224 a tonne, while battery material lead was unchanged at $1,180 a tonne. Tin was flat at $10,950 a tonne and key stainless steel ingredient nickel fell to $9,950 a tonne from $10,025.
