Copper price retreats after four-week high

Copper hit a fourweek high on Tuesday as bets on lower prices were reversed ahead of a Chinese holiday, but prices fell later in the day as focus returned to oversupply and weak demand growth in top consumer China.

Benchmark copper on the London Metal Exchange (LME) ended down 0.3% to $4,548 a ton. The metal used in power and construction earlier touched $4,628 a ton, its highest since Jan. 7.

Traders and funds covering short positions ahead of the weeklong Chinese Lunar New Year holiday starting on Monday were said to be behind the earlier price surge.

“The overall picture for copper is bearish,” said Barclays’ commodities analyst Dane Davis.

“The Chinese holiday means the entire country shuts down. I would caution against interpreting price swings in February as we really don’t know what’s going on with the fundamentals.”

Copper demand growth slowed to around 2% last year in China, which accounted for nearly half of global consumption estimated at around 22 million tons. This year is unlikely to see much of an improvement, analysts say.

China’s manufacturing activity contracted at its fastest pace in almost three-and-a-half years in January, an official survey showed, suggesting growth is off to a weak start in 2016.

Last year mining giants Glencore and Freeport as well as Poland’s KGHM announced plans to suspend some copper production.

But more cuts are needed to move the market towards balance.

“Rising technical outages due to falling sustaining capex, accelerating ore grade depletion, African copper belt power supply constraints, and sustained negative operating margins prompting economic capacity closures will again be key to mine supply in 2016,” Citi said in a note.

OTHER METALS

Three-month aluminum lost 1.3% to $1,501.

Zinc closed up 1.6% at $1,674. It earlier touched a two-month high of $1,685.50 as the market factored in tighter supplies. Zinc prices are up more than 15% since Jan. 12.

News that a large US zinc producer Horsehead Holding had filed for Chapter 11 bankruptcy helped boost sentiment.

Lead gained 1.3% to $ 1,755. Worries about supplies due to large holdings of LME warrants lifted the battery metal to a fourweek high of $1,770.

Nickel slid 0.7% to $ 8,400 a ton and tin fell 0.2% at $14,775. —