Copper declines

Copper slipped on Wednesday, as worries higher interest rates in China could dampen industrial demand washed through the market, although a softer dollar lent support. Three-month copper on the London Metal Exchange was $9,925 a tonne from the closing $10,059 bid on Tuesday. The metal, used in power and construction, touched a record high of $10,160 at the start of the week.
Tin also matched Tuesday's record high at $31,650 amid ongoing supply concerns from top exporter Indonesia. "You've had the potential implications of the rate hike feeding through the market," said analyst Daniel Major of RBS. China's central bank has raised rates twice in the last six weeks in an effort to bring high inflation under control in the world's top consumer of base metals.
Asian trading desks returned to full strength on Wednesday following the week-long Lunar New Year holidays. The longer-term outlook for copper remained positive, underpinned by the risk of a chronic supply shortage developing through 2011 as growth and rising demand in China, outstrip miners' ability to supply the 21 million tonne market by 800,000 tonnes or more.
But traders also said that lacklustre physical demand from China where consumers, reluctant to chase prices at record levels, could erode price support. "The lack of immediate physical activity continues to give us cause for concern in terms of the potential scale of any near-term correction, should risk appetite drop sharply," said Standard Bank in a note.
However so far, worries that metal-backed exchange-traded products will siphon away much needed metal may ease after data showed redemption's in the ETF Securities metal-backed product. The amount of copper held to back the physical copper ETP has dropped by one third or around 720 tonnes so far in February, while physical nickel ETP stocks also plunged, to 78 tonnes from 402 tonnes. However, demand for physical tin more than doubled to 405 tonnes from 180 tonnes at the end of January.
Aluminium ended at $2,546 a tonne from a close of $2,565 a tonne on Tuesday. Large deliveries of aluminium have appeared in LME warehouses this year and, with 39,225 tonnes having been delivered into storage on Tuesday, total inventories are just 40,100 tonnes short of a record high of 4,640,750 tonnes hit on January 20, 2010. Supporting prices, however, owners of the aluminium are keeping metal tightly held, a trader said. "They will sell it, but only when they get their number," he said.
Battery material lead closed at $2,520 from $2,569 a tonne. Nickel was untraded on the close, but bid at $28,375/28,400 from $28,390 a tonne. Zinc ended at $2,458 a tonne from $2,511 on Tuesday. Tin turned negative to close at $31,255 a tonne. But given the tight supply outlook from top exporter Indonesia, prospects are for higher prices ahead, according to MF Global. "Should the supply side remain...unresponsive in 2011 we would not be surprised to see a $40,000 print on tin given the low level of stocks and the fact that only a handful of producers have the potential to turn on production," it said.