Copper, zinc and other base metals headed lower on Wednesday, pressured by a strong dollar, losses in steel-related products and the unwinding by speculators of very long positions after a blistering rally last week. Benchmark copper on the London Metal Exchange fell for a second session and closed down 1.6 percent at $5,433 a tonne, after hitting its highest since June 2015 at $6,025.50 a tonne on Friday.
"The dollar is a big driver, pushing down the complex, but there are also growing fears in China about what the new stance of the Trump administration will be towards China," said Gianclaudio Torlizzi, partner at Milan consultancy T-Commodity. The dollar index hit the highest in 14 years, making commodities priced in the greenback more expensive for buyers using other currencies.
During his campaign, US President-elect Donald Trump threatened to impose tariffs on Chinese goods and also regards China as a currency manipulator. In addition, LME copper has flipped to a premium instead of a discount to copper on the Shanghai Futures Exchange, dampening down arbitrage trade, Torlizzi said. "LME copper has failed below resistance of $5,750 and as long as it stays below there, every bounce is a sell," he added, saying he was short with a target of $5,100.
Broker Marex Spectron said its estimates of the speculative long position in LME copper showed a surge last week to the highest levels since 2010 and traders said speculators have been trimming them this week. In Shanghai, producers and traders at the Metal Bulletin Cesco copper conference cast doubt on the chances of a prolonged rally in copper prices, saying the global market will be oversupplied for at least two years.
Zinc, mainly used for galvanising steel, was also pressured by steep losses in iron ore and steel prices and selling by miners. "We are seeing evidence of producer selling (in zinc) with enquiries out to 2020," said Dee Perera at broker Marex Spectron.
LME zinc failed to trade in closing rings and was bid down 3.5 percent at $2,523 a tonne, while aluminium finished 2.3 percent weaker at $1,696 on worries about Chinese smelters restarting and adding to a glut of supply. Nickel bucked the weaker trend and added 0.4 percent to close at $11,330 after touching $12,145 on Friday. Its correction should be short-lived and nickel is due to bounce back to fresh highs, said St?phanie Aymes, head of technical analysis at Societe Generale. Tin ended down 2.1 percent at $19,875 while lead gave up 2.2 percent to $2,161.
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