Copper retreated from two-week highs on Tuesday as worries over Middle East unrest boosted oil prices and ignited inflation concerns, which encouraged investors to sell risky assets such as base metals. Copper traded at $9,815.50 a tonne at 1603 GMT, down from a close of $9,885 on Monday. The metal used in power and construction earlier reached a two-week high at $9,942 a tonne, nearing record peaks of $10,190 a tonne from Feb. 15.
Aluminium fell back from 2-1/2 year highs, while worries over supplies from the Middle East cushioned prices. Mixed US data may have spurred copper's fall, but that was not the dominant factor, said RBS analyst Daniel Major. "The sell-off is more affiliated with the further tensions that we're seeing on Libya and how that's progressing, which is having a negative impact on risk sensitive commodities like base metals," he said.
The US manufacturing sector grew at its fastest rate since May 2004 in February, although construction spending fell more than expected in January to its lowest level in five months. The mixed figures did little to alleviate overall concern about growth. Helping to support the view that monetary tightening was beginning to register, data out of China showed manufacturing growth slowed in February. Analysts said more tightening would probably be needed to cool inflation due largely to rising oil and food prices.
KGHM, Europe's second-biggest copper producer, aims to become one of the world's top five producers by 2018 and is considering a dual share listing to help fund foreign expansion plans, its chief executive said on Tuesday. The copper market is watching avidly stocks in LME warehouses for signs of Chinese buying, which many investors expect will propel copper to new records.
"It could be we trade sideways again in a $9750/$9950 range before turning higher eventually when the long awaited consumer buying returns," noted RBC Capital in a research note. In LME inventory data, copper stocks fell by 725 tonnes to 420,275 tonnes. High stocks have weighed on prices of aluminium used in transport, packaging and construction. But that has been offset by conflict in the Middle East, which houses significant aluminium smelting capacity.
Three-month aluminium traded at $2,586 a tonne, down from $2,600 on Monday. It earlier hit $2,617.25 a tonne, its highest since September 2008 on fears of supply problems in the Middle East and North Africa. "The focus is mainly on aluminium as the MENA region produces about 9 percent of global supply," said Credit Suisse Private Banking in a note. Global aluminium supply this year is expected at around 45 million tonnes. Zinc traded at $2,500.50 from $2,520 a tonne. Lead stood at $2,545 from $2,562, while tin fell to $31,950 from $32,320. Nickel traded at $28,790 a tonne from $28,990 on Monday.