Copper dipped and zinc retreated from its highest levels in almost three years on Monday as investors worried that prices may have overshot after recent gains. Copper had gained 9 percent from mid-June to July 8, when it touched a 4-1/2 month high. But it has failed to make much headway since then. Benchmark copper on the London Metal Exchange (LME) failed to trade in closing open outcry activity and was last bid down 0.5 percent at $7,120 a tonne.
"I think it is some long liquidation," said Gianclaudio Torlizzi, partner at consultancy T-Commodity, who forecasts prices will slide to $6,500 by October. "It is pretty possible we are at the beginning of a new risk-off phase." Hedge funds and money managers had increased their bullish bets on copper last week, according to US data on Friday. Analyst Edward Meir at broker INTL FCStone said the weight of longs in the market increased the risk of selling by disappointed speculators.
"The more we stay at current levels without some impetus to move higher, the higher the odds of a pullback taking place," he said in a note. Rising exchange inventories in copper also deterred investors from betting that the metal would go above recent highs in the near term. Acting as a drag on copper, data showed on Monday that euro zone industrial production dropped sharply in May, with the energy sector the only one to thrive, highlighting the fragile state of the bloc's recovery.
Zinc closed slightly firmer on the day. Three month LME zinc had climbed to $2,325.50 a tonne, the loftiest since August 2011, before paring gains to end the day up 0.2 percent at $2,307. Prices have rallied nearly 13 percent this year, driven primarily by expected closures of mines next year, especially Australia's giant Century mine, and by inventory withdrawals from LME warehouses.
Some market participants were concerned that zinc prices might have over-reached, at least in the short term. "The mine-supply gap (in zinc) might not end up as large as expected. I understand Century may find resources to keep the mine operating till end-2016. Plus if we get to $2,500 a tonne, then the Chinese will start cranking up output," Societe Generale analyst Robin Bhar said.
Output from Century, the world's third biggest, could drop 5 percent this year and is expected to run dry in mid-2015, Chinese owner MMG Ltd said in April. LME aluminium finished little changed, up 0.1 percent at $1,942 a tonne, after rising for the past two weeks. Scant spot market supplies propelled cash prices to their highest against the benchmark since December 2012 on Friday.
Higher cash prices versus forward ones would curb marginal profits for some financing deals that have locked metal away from the market, suggesting more stocks may be delivered to LME warehouses. According to Citi, producer selling has capped the recent rally. "We now see little prospect of prices sustaining upside moves outside a $1,850-$1,950/tonne price range in H2," the bank said in a note. In other metals, lead closed up 0.3 percent at $2,213 a tonne and nickel fell 0.2 percent to $19,350 a tonne. Tin failed to trade in official rings and was last bid up 0.3 percent at $22,150 a tonne.
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