LONDON — Copper edged down on Wednesday, as a rally boosted by consecutive falls in inventories ran out of steam after stocks posted a small rise, denting expectations of an improvement in demand.
Copper for three-months delivery on the London Metal Exchange was at $3,788 (U.S.) a tonne by 1045 GMT, versus $3,800 a tonne at the close on Tuesday, when it touched its highest in more than four months.
“The stocks have stopped falling therefore the buyers are a bit reluctant now,” said Jesper Dannesboe, senior commodity strategist at Societe Generale said.
Stocks of copper, used extensively in construction, edged up by a small 625 tonnes to 495,150 tonnes, in contrast to the fall of nearly 50,000 tonnes since late February. Cancelled warrants firmed to 23,475 tonnes from Tuesday's 22,475 tonnes.
Continuous drawdowns in copper inventories and a rise in cancelled warrants – material earmarked for delivery – helped boost sentiment and drove copper higher over the last couple of weeks as it raised expectations of an improvement demand.
But some analysts warned that upside momentum might be waning as the pace of deliveries from LME warehouses slowed, and copper prices had run ahead of themselves in the recent rally.
Moreover, the purchase in recent weeks of 300,000 tonnes of metal by China's State Reserves Bureau (SRB) to boost the country's strategic stockpiles was another factor which had been underpinning the price.
Although industry sources said the SRB had almost completed its overseas purchases, investment bank Macquarie said in a research note that copper prices could receive a further boost from more buying – estimated at between 600,000 to 900,000 tonnes for the rest of the year – by the state-run agency.
“We do believe that the SRB has the appetite to buy much more copper yet, and are comfortable viewing the SRB as a supportive factor for copper, which should prevent prices dropping significantly below $3,000 per tonne,” Macquarie analyst Adam Rowley said in the note.
Metals were also taking their cue from equity markets, which moved in volatile trade in Europe, slightly higher by 1043 GMT, after moving into negative territory earlier.
“All eyes are on equity markets to see whether this rally is sustainable,” said Andrey Kryuchenkov, an analyst at VTB Capital. “People think it is a bear market rally.”
European shares were slightly higher by mid-morning on Wednesday, lifted by financials, but gains were limited by UK jobless data showing that the number of jobless rose to more than 2 million for the first time since 1997.
Mr. Kryuchenkov said Tuesday's forecast-beating U.S. housing data supported industrial metal prices, but the market was awaiting to hear the conclusion of the U.S. Federal Reserve's policy meeting, due later in the day.
Three-month aluminum shrugged off another massive inventories jump of over 65,000 tonnes and was slightly higher at $1,390 a tonne, compared with Tuesday's $1,373 a tonne. Total stocks stood at a record high of 3.44 million tonnes.
But Mr. Dannesboe said sentiment has improved in the market, which is partly why copper has held onto its recent gains of 14 per cent alone in March. “I wouldn't be surprised if copper would touch $4,000 a tonne.”
Zinc was at $1,232 a tonne from $1,235 while steel-making ingredient nickel dropped to $9,900 from $10,050 a tonne. Battery material lead fell $8 to $1,340 a tonne after hitting a four-month high of $1,370.
