Copper prices backtracked from early record highs in Monday open-outcry trading on the London Metal Exchange (LME), but the setback looked temporary given current bullish sentiment and momentum, dealers said. "There has been some profit-taking in copper - not surprising as it was looking distinctly dizzy up there," a floor trader said.
Copper, at $3,435 a tonne early, ended at $3,375 in the evening kerb close, down $13 from Friday's close.
"The market needed to retrace a little bit, having gone up so much over the past week," another trader said.
"We're $50 or so off the top - it's not a huge pullback and there are bits and pieces of buying going on down here."
He added that copper might also have been knocked by news BHP Billiton hopes to begin operating its Peruvian Tintaya copper mine at full capacity next week following a shut-down because of protests on May 25.
Copper has charged higher since last week due to declining stocks, supply worries, currency factors and signs of strong demand from China, analysts said.
"Investors and consumers have been caught short; hedge funds had positioned themselves for a move lower in prices on slower demand and rising supplies, and consumers have awaited lower prices," Barclays Capital said in a note.
The LME market is in the grips of a squeeze on nearby supplies as stocks decline. On Monday LME warehouse inventories dropped 2,000 tonnes to 34,500 tonnes, the lowest for 31 years.
This forced the cash/threes backwardation to $280/290 from Friday's $270, the widest since December 1995, when the market was being influenced by rogue Sumitomo trader Yasuo Hamanaka.
However, lending in the rings for nearby dates knocked it back slightly to $261/265.
While visible stocks at the LME, US and Chinese exchanges are around 80,000 tonnes, producer and consumer stocks are 10 times that amount. They have risen since end-2004 to nearly 800,000 tonnes.
"We are moving towards a disorderly market. A few thousand tonnes of copper is dictating the terms that millions of tonnes are transacted at," analyst Nick Moore of ABN-Amro said.
Because the LME inventory has been whittled away, the financial threshold to control stocks is significantly lower than the 500,000-tonne level during the mid-1990s, when the market was plagued by manipulation.
"It is $120 million now, which is peanuts," Moore said.
Different conditions prevail in the physical sector, where premiums have been easing. "There does seem to be a two-tier market. The physical market is slack, premiums are down - you can get copper," Moore added.
Aluminium put in a strong performance, scoring seven-week highs. It gained $20 to $1,797, versus $1,777 on Friday. The metal has risen 5.5 percent in a week, but is still some way from a 10-year high of $2,016 scored in March.
Supportive news came from Germany, where shareholders in German aluminium producer Hamburger Aluminium-Werke decided to end primary aluminium production at its plant by December 31.
Zinc inched down to $1,313 from $1,317, while lead was at $975, down $3. Nickel gained to $16,225 from $16,205, while tin eased to $7,550 from $7,600.
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