Copper retreats as inventories rise, demand softens

Copper prices fell on Friday after two days of gains as rising stocks in London Metal Exchange warehouses and signs of softer demand from China dragged the metal further away last month's 17-month peak. The metal got little support from a rally in European shares to 11-month highs or a retreat in the dollar, which slipped back from the 14-year highs it hit after a hawkish statement on interest rate policy from the US Federal Reserve.
Benchmark LME copper closed down 1.7 percent at $5,635 a tonne. The metal, used widely in power and construction, has fallen more than 5 percent since breaking above $6,000 last month. Upbeat economic data from China suggests demand should be positive next year, analysts said, but in the near term rising inventories and signs that Chinese funds have moved to the short copper positions have put the metal under pressure.
"That positioning- and technically-driven rally to the upside had reached a point which was too far detached from underlying fundamentals to remain supported," Standard Chartered analyst Nicholas Snowdon said. "There has been a turn in investor sentiment, and more broadly, when you look at the state of the physical market, the refined market is softer than one would usually expect at this time of year. We're seeing that ultimately reflected in some pretty sizeable deliveries into LME warehouses in Asia."
Copper inventories in LME warehouses rose another 11,775 tonnes on Thursday, to reach a six-week high of 307,075 tonnes, exchange data showed on Friday. The increases were chiefly at Asian warehouses, suggesting the metal had come from China, analysts said.
Stocks have risen by 40 percent from their December 8 low. Lead ended the day 4.5 percent lower at $2,245 a tonne. "Chinese lead production decreased by a good 7 percent to 362,000 tonnes in November ... probably due among other things to the low treatment charges," Commerzbank said in a note.
"According to the International Lead and Zinc Study Group (ILZSG), the global lead market was still amply supplied in the first 10 months of the year, the figures indicating a supply surplus of 35,000 tonnes. While production was scaled back by roughly 1 percent, demand declined by twice as much." Nickel closed down 1.3 percent at $11,170 a tonne.
Tin ended little changed at $21,230 a tonne, aluminium closed down 1.1 percent at $1,717 a tonne and zinc was 3 percent lower at $2,730 a tonne.