Copper leads metals lower despite demand prospects

Copper gave up earlier gains on Wednesday as concerns that the metal's rally had become overstretched outweighed prospects of higher demand from the world's largest economies. "Most of the move has been Chinese speculatively driven, particularly the move towards $6,000 - it just seems too far," Citi analyst David Wilson said. Three-month copper on the London Metal's Exchange ended 1.7 percent lower at $5,785 a tonne. The metal gained 20 percent last month.
Prices have traded in a $5,600-$6,045 range since late November, peaking last week at $6,045.50, the highest since mid-2015. "We were very surprised at the rise in metals last month and even more surprised that they held on to those gains into this month," said Sucden Group's senior research analyst Kash Kamal. At the same time investor bets that copper will outperform next year have grown with the total net long position of funds trading copper on the LME rose 6.2 percent to a record of 78,054 lots last Friday, the bourse's Commitments of Traders Report showed.
"There is the possibility that we have over-extended on the long side. A loosening of those positions might be wise," Kamal said. Momentum in copper was driven by hopes that US President-elect Donald Trump will spend more on infrastructure and Chinese economic activity and speculative spending will continue.
China's retail investors have flocked to metals, given a cooling property market and because many were burned in the country's stock market meltdown last year. In supply news, Rio Tinto said on Tuesday it expects the copper market to go into deficit by 2020, just as its extension to the Oyu Tolgoi mine in Mongolia comes on stream. But reflecting a pick-up in demand, copper inventories on Wednesday fell to around 230,000 tonnes, according to London Metal Exchange (LME) data, down about 40 percent from a 2016 peak in September. The best-performing LME metal this year, zinc, fell 1.5 percent to $2,740 while nickel shed 1.7 percent to $11,410 per tonne. Aluminium slipped 0.1 percent to $1,707; lead fell 1.9 percent to $2,321; while tin was 0.1 percent lower at $21,100.