LONDON — Copper fell on Tuesday as the U.S. dollar gained and copper inventories jumped nearly 5,000 tonnes, highlighting weak physical demand, but traders said there was scope for prices to rise due to robust investor interest.
Traders will watch macroeconomic data from major copper consumer the United States, due later in the day and including U.S. growth figures and consumer confidence.
Copper for three months delivery on the London Metal Exchange fell to $6,874 (U.S.) a tonne by 1011 GMT, versus $6,950 a tonne on Monday, when it rallied to $7,010 a tonne, its highest since September 2008.
“With equities coming off and a stronger dollar, people get a bit more risk averse,” said analyst Marc Elliott at Fairfax. “It creates a more negative sentiment towards metals,” he said.
The U.S. dollar was broadly higher, making industrial metals more expensive for local currency holders while European equities fell, tracking losses in Asia.
“LME inventories continue to climb. It is a bit of a worrying trend, showing the underlying demand is not there,” Mr. Elliott said.
Stocks of copper, used mainly in construction, have risen 4,725 tonnes to 429,650 tonnes, the highest since end-April. Stocks have climbed 67 per cent since a low hit in end-July.
China's latest copper imports figures on Monday further reflected the poor demand outlook. Refined imports were down by 40 per cent in October and traders did not see Chinese buying resuming at copper's current higher price levels.
But several analysts said there was still room for further gains, as the driver of copper prices is not the fundamentals but rather the investment money that is being poured into commodities as risk appetite increases.
“Copper could keep rallying even though the fundamentals are not justifying,” said Jesper Dannesboe, senior commodity strategist at Societe Generale.
“The investors are taking a very long view. If you have a big portfolio of equities and bonds and you'd like to diversify, you will not assess the price performance for 2-3 months, you'll take a multi-year view,” he said.
For the longer run, there's a consensus that copper offers good returns with supply getting tighter, now and in the future.
Despite weak demand this year, figures from the International Copper Study Group showed copper consumption exceeded production in the first eight months of this year.
The market was in a deficit of 32,000 tonnes, versus a deficit of 117,000 tonnes in the same year-ago period.
Among other base metals, aluminum fell $20 to $2,018 in light trade.
A strike at Guyana's biggest bauxite mine was unlikely to lift metal prices. A union leader said workers at the 2.5 million tonne-per-year Aroaima mine owned by UC Rusal were resisting pressure by the company to accept layoffs in return for a 10 per cent wage increase for remaining workers.
The operation supplies enough bauxite for more than 600,000 tonnes of primary aluminum annually.
“This won't have any implications for the metal, unfortunately,” said a Shanghai trader with a long position in the metal.
Stainless steel ingredient nickel traded at $16,759 a tonne from $16,905, zinc at $2,244 from $2,272, lead at $2,360 from $2,410 and tin was at $15,000 from Friday's last bid at $15,150 a tonne.
