Copper slips, focus on expectations of surplus

Copper held steady on Wednesday, but expectations of surplus metal and weak demand in top consumer China mean prices look likely to come under further pressure over coming sessions. Benchmark copper on the London Metal Exchange ended up 0.1 percent at $4,735, but the metal, used in power and construction, remained on course for a loss of more than 25 percent this year. "We need to see some signs that Chinese demand could improve next year, but that may not happen until after China's New Year holiday (in February)," a copper trader said.
"The miners need to play ball, they need to make large cuts to concentrate supplies until that happens the market will keep testing the downside." Copper hit a 6-1/2 year low below $4,450 last month. China accounts for nearly half of global copper consumption estimated at 23 million tonnes this year. Copper found support on Tuesday from news that nine large copper smelters in China had agreed to cut sales of spot metal by as much as 200,000 tonnes in the first quarter of 2016.
This adds to an earlier decision by smelters to cut production next year by at least 350,000 tonnes. Traders say copper could move between $4,500 and $4,750 until some fundamental trigger pushes it out of that range. "Trade customers are absent from the market. That leaves the complex at the mercy of CTAs (commodity trading advisors)," the trader said.
CTAs trade using buy or sell signals generated by mathematical models. Traders say these funds have been buying lead and covering short positions on zinc. Three-month lead closed up 0.6 percent at $1,778 a tonne after hitting a two-month high of $1,786. Worries about shortages of material for nearby delivery due to two companies holding large positions of cash contracts and warrants are one reason behind price gains. This is reflected in the premium of $5 a tonne for cash metal over the three-month contract.
Zinc climbed 1.7 percent to $1,632 a tonne, a one-month high. "Zinc seems to have found a floor at $1,500 and maybe people are starting to believe the idea of tighter supplies next year," another trader said. Aluminium fell 0.5 percent to $1,528 a tonne, nickel lost 0.6 percent to $8,700 and tin ceded 0.3 percent to $14,650.