LONDON: Aluminium and zinc prices retreated on Tuesday after inventories climbed, reminding investors that weak demand because of the coronavirus pandemic is likely to result in large surpluses.
Some other industrial metals also slipped into the red along with oil and European stock markets as investors worried that rallies in riskier assets have moved too quickly to price in a recovery after lockdowns that froze many economies.
But copper extended its rally, touching its highest in more than three months on hopes of economic recovery in top consumer China.
"I think caution is warranted. We need to see some of the macro indicators confirm the recent recovery in prices," said independent metals consultant Robin Bhar.
Benchmark aluminium on the London Metal Exchange (LME) retreated after making early gains and was almost flat at $1,604.50 a tonne at 1600 GMT. It has rallied nearly 10% over the past 3-1/2 weeks, touching its highest since March 20 on Monday.
Global aluminium inventories are expected to surge by 5 million tonnes by the end of the year to 16 million, much of it in hidden warehouses, according to consultancy CRU.
LME aluminium inventories hit a three-year high of 1.54 million tonnes and have surged by 52% over the past three months, LME data showed.
Before the LME stocks data was released, the most-traded July aluminium contract on the Shanghai Futures Exchange hit its highest in more than 4-1/2 months, closing with a 1.7% gain at 13,555 yuan ($1,915.31) a tonne.
On-warrant LME zinc inventories jumped by 10,000 tonnes to 89,400 tonnes, data showed.
LME three-month zinc slipped 1.3% to $2,015.50 a tonne.
LME nickel shed 1% to $12,935 a tonne but copper advanced 1.2% to $5,768.50, its highest since March 3.
Lead edged up 0.1% to $1,761 and tin climbed 1.4% to its strongest since March 11 at $16,895.