LONDON — Copper fell 1 per cent on Wednesday, as the U.S. dollar rose and a strong first quarter gave way to caution about global demand growth as equity markets dropped.
Three-month copper on the London Metal Exchange slipped to the psychological level of $4,000 (U.S.) a tonne at 1004 GMT from $4,040 on Tuesday Investors fretting over the sustainability of recent gains will watch U.S. ISM March manufacturing data and February construction spending, due at 1400 GMT, for clues on the outlook for the U.S. economy and demand.
“The ISM numbers today from the U.S. are very important for the metals market, so there's a bit of caution creeping in,” said David Thurtell, an analyst at Citi.
“The other thing that hurt metals this morning is the stronger dollar,” he added.
The U.S. dollar was supported as uncertainty over the fate of U.S. carmakers and falling share prices prompted investors to seek perceived safer assets and shun high yielders. A stronger U.S. currency makes metals priced in dollars more expensive for holders of other currencies.
Investors are also cautious as world leaders gather for the G20 summit to tackle the global economic crisis, amid fresh signs of weakness in major economies including Japan, where business confidence fell to record lows.
“People are waiting to see if anything comes out of the G20 meeting. People are waiting to see if any concerted stimulus measures are implemented,” Mr. Thurtell added.
The first quarter saw copper climbing by nearly a third as China imported metal, with prices registering their biggest quarterly rise since June 2006.
But analysts voiced caution about how much of Chinese buying has been attributable to genuine demand and how much has been the world's top copper consumer stockpiling on appealing prices.
“The current price looks fragile,” an analyst said, adding that first-quarter gains had been largely based on Chinese stockpiling. “Underlying demand and supply fundamentals suggest the price could ease back to the mid or low $3,000's.”
Copper has also been sold to stop the exercise of call options to buy the metal at $4,000 a tonne at expiry.
Reviving demand concerns, copper inventories at LME warehouses rose by 2,150 tonnes to 501,775 tonnes.
But cancelled warrants – material earmarked for delivery – rose to 29,375 tonnes from 26,475 the day before.
Cancelled warrants have fallen by nearly 50 per cent since early March, from 55,025 tonnes on March 2.
Aluminum prices stood at $1,383 a tonne from $1,392. Inventories of the metal climbed by 8,325 tonnes to a record nearing 3.5 million tonnes.
Cancelled tonnage rose to 92,675 tonnes on Wednesday from 80,150 tonnes the day before.
Zinc stood at $1,296 a tonne from $1,320. Battery material lead was at $1,240 from $1,270.
Tin was at flat at $10,350, while steel-making ingredient nickel traded at $9,690 from $9,800.
Meanwhile, the Baltic dry freight index has risen by more than 100 per cent since the start of the year but is still way below its record high of nearly 12,000 struck in mid-2008.
“As the chart shows, the move higher was small in absolute terms,” said UBS in a note.
“The divergence between base metals and the freight index over the past month should wave a warning flag to investors who are long base metals.”
