Copper edged lower on Wednesday, retreating from Tuesday's 20-month high as market players questioned whether prices around $8,000 (U.S.) were justified by the fundamental backdrop.
Three-month copper on the London Metal Exchange dipped to $7,956.50 a tonne at 0948 GMT from a close of $7,990 on Tuesday. The metal used in power and construction touched $8,010 in the previous session, its highest since August 2008.
Copper rallied on Tuesday after robust U.S. jobs, service sector and housing data lifted the demand outlook for base metals.
But traders and analysts, concerned about the pace of economic recovery in the West, said prices were exceeding the fundamental picture.
“It's very overbought and it's well above the fundamental levels,” Eugen Weinberg, an analyst at Commerzbank, said of the market. “There's very strong speculative momentum behind it.”
Underlining worries about OECD demand, data on Wednesday showed euro zone growth stalled in the last quarter of 2009.
“Demand growth in Europe is very weak in the commodities sector,” Mr. Weinberg said.
Inventories Dip
Offering some support, however, stocks of copper at LME warehouses have been declining steadily since late February, indicating improving demand.
Stocks last fell 1,925 tonnes to 510,650 tonnes, to their lowest level since early January.
And major miner Rio Tinto said at the CRU/CESCO conference in Chile that it saw the market in “meaningful” deficit next year, with China probably forced to draw down strategic reserves to help meet demand.
Mr. Weinberg said investors were focusing on robust demand in China and other emerging countries, but he said copper looked set to weaken as demand from top consumer China could well soften and the demand outlook in the West remained poor.
Dampening sentiment, the rise in LME prices has effectively closed any arbitrage trading opportunities with Shanghai and some analysts worry this may curb Chinese imports.
Shanghai prices have risen 4.8 per cent so far this year, versus an 8 per cent rise on the LME.
“The arbitrage window with Shanghai is pretty much closed at the moment which is likely to limit China's refined imports in April,” said Andrey Kryuchenkov, analyst at VTB Capital.
Aluminum traded at $2,360 from $2,365. Stocks of the metal used in transport and packaging rose 2,400, standing above 4.59 million tonnes and within reach of this year's record high above 4.6 million tonnes.
Zinc was at $2,427 from Tuesday's last bid of $2,448 and battery material lead was at $2,293 from $2,300. Tin traded at $18,500 from $18,415 and nickel was at $24,524 from Tuesday's last bid of $24,800.
