Copper retreated on Wednesday as investors cashed in on a rally that took prices to an eight-month peak after doubts set in over a US-China trade deal. US Treasury Secretary Steven Mnuchin said tariffs would remain after a Phase 1 trade deal signing later on Wednesday, but President Donald Trump could consider easing them if China moves quickly to seal a second agreement.
"People have come back to reality about the trade wars. Also some people probably want to liquidate and take profit at this stage and see how it goes after the signing later today," said Wenyu Yao, senior commodities strategist at ING Bank in London. Benchmark copper on the London Metal Exchange snapped a seven-session streak of increases, having gained 9% at its peak on Tuesday since early December.
"Since December, prices have been running ahead of real fundamentals. In the short term, it's hard to justify prices based on a recovery of real demand," she added. Three-month LME copper fell 0.2% in final open-outcry trading to $6,287 a tonne.
"The physical market will slow down before the Lunar New Year and most end users will stop buying from next week until ... February," said Fred Gu, a vice-president at Bayin Resources, referring to a week-long holiday in China starting on Jan. 24. LME lead climbed 2.7% in closing rings to a eight-week high of $1,999 a tonne as bearish investors closed out positions, according to Yao.
"People have been shorting lead because of the spread between primary and secondary (metal), shorting the margins, but now it's a bit overdone and the market is on a correction path." Copper inventories in LME-approved warehouses fell to a fresh 10-month low of 128,050 tonnes, helping to cushion the price decline.
However, copper stocks in China's Shanghai-bonded warehouses rebounded slightly in January to 265,000 tonnes, from a record low of 244,000 tonnes in December, Shanghai Metals Market monthly data showed. The discount of LME copper cash to the three-month contract expanded to a three-month high of$32 a tonne on Tuesday, suggesting no nearby shortage of the metal. It was at $31.25 on Wednesday.
Tin prices gained as the semiconductor industry recovered. Year-on-year growth of combined semiconductor exports of South Korea, Taiwan and China jumped in December 2019 to the highest since January 2019, Citi analyst Jin-Wook Kim said in a note.
The biggest use of tin, making up nearly half of demand, is for solder used chiefly in the electronics industry to connect components. LME tin added 0.1% to finish at $17,450 after hitting $17,550, the highest since Sept. 12. LME aluminium dipped 0.4% to close at $1,801 a tonne, zinc rose 0.5% to $2,385 and nickel gained 2.8% to $14,230 a tonne.