LONDON, April 7 (Reuters) - Copper edged lower on Wednesday, retreating from Tuesday's 20-month high as market players questioned whether prices around $8,000 were justified by the fundamental backdrop.
Three-month copper on the London Metal Exchange CMCU3 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.
For a chart showing copper trading volumes at particular prices on April 6, click: here
Copper rallied on Tuesday after robust U.S. jobs, service sector and housing data lifted the demand outlook for base metals.[ID:nN01126422] [ID:nN05117920]
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. [ID:nLDE6360KQ]
"Demand growth in Europe is very weak in the commodities sector," Weinberg said.
STOCKS DOWN
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 (RIO.L) (RIO.AX) 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. [ID:nN06230180]
For more stories from the world's biggest copper gathering this week at the CRU/CESCO conference in Chile, click nCOPPER
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 percent so far this year, versus an 8 percent 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.
For a graphic showing the arbitrage, click: here
Aluminium CMAL3 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 CMZN3 was at $2,427 from Tuesday's last bid of $2,448 and battery material lead CMPB3 was at $2,293 from $2,300. Tin CMSN3 traded at $18,500 from $18,415 and nickel CMNI3 was at $24,524 from Tuesday's last bid of $24,800.
Metal Prices at 0951 GMT Metal Last Change Pct Move End 2009 Ytd Pct
move COMEX Cu 360.50 -0.45 -0.12 332.75 8.34 LME Alum 2354.00 -11.00 -0.47 2230.00 5.56 LME Cu 7951.00 -39.00 -0.49 7375.00 7.81 LME Lead 2290.00 -10.00 -0.43 2432.00 -5.84 LME Nickel 24455.00 -595.00 -2.38 18525.00 32.01 LME Tin 18450.00 35.00 +0.19 16950.00 8.85 LME Zinc 2422.00 18.00 +0.75 2560.00 -5.39 SHFE Alu 16785.00 -30.00 -0.18 17160.00 -2.19 SHFE Cu* 62750.00 -360.00 -0.57 59900.00 4.76 SHFE Zin 19490.00 5.00 +0.03 21195.00 -8.04 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07
