US copper futures were down over 1 percent in early trade on Thursday after a hefty build in London warehouse stocks fuelled speculation of slowing demand, traders and analysts said. However, the bullish backdrop of unresolved labour disputes in Canada and South America was seen limiting the losses, they added.
"This is making markets slightly nervous about the Shanghai stock numbers due out tomorrow, since it will remove the 'LME offset' in the form of consistently falling stocks that has been prevalent in recent weeks," said Edward Meir, metals analyst with Man Financial.
"Despite the weaker tone in copper thus far, we expect values to recover over the balance of the week as the backdrop of unresolved strike situations should exert itself as the dominant feature," Meir said.
Most-active September copper was down 3.10 cents or 0.90 percent to $3.41 a lb by 10:42 am EDT (1442 GMT) on the New York Mercantile Exchange's COMEX division, moving between $3.3910 and $3.45. Larry Young, senior trader at Infinity Brokerage Services in Chicago, said the market was setting itself up for another challenge of key resistance at $3.50.
"From a technical standpoint, it has been classic in terms of holding support and building off of that. You're going to see a couple of tests of that $3.50 level before we can close above it and then that will give us the momentum to take out $3.80," Young said.
Soon-to-be spot July copper fell 2.90 cents to $3.4135, with additional pressure seen from position rolling ahead of the contract's first notice day on June 29. As of June 20, open interest in July copper fell 2,976 lots to 17,396 lots, while interest in September grew 3,142 lots to 40,595 lots.
Estimated copper futures volumes by 10:00 am totalled 4,804 lots. London Metal Exchange copper inventories jumped 5,400 tonnes to 119,600 tonnes on Thursday, fuelling speculation that demand may be slowing.
However, investment bank UBS noted that much of the increase occurred in South Korean locations and was offset, to some extent, by a 2,250-tonne rise in cancelled warrants which now account for 14 percent of total stocks - the highest for any metal.
COMEX stocks declined 506 to 23,302 short tons on Wednesday. Still, attention continued to be focused on strike threats, especially at Chile's Codelco, where subcontract workers at the world's largest copper producer planned to meet with company executives to discuss demands for better working conditions.