LONDON - Copper dropped more than 2 per cent on Thursday, tracking losses in U.S. equities after a surge in treasury spreads and mixed U.S. housing data dampened the outlook for economic recovery.
Copper for three-months delivery on the London Metal Exchange traded at $4,617 (U.S.) a tonne at 0906 GMT, down from a level of $4,665 quoted late on Wednesday. The metal used in power and construction touched a near three-week peak of $4,725 a tonne on Wednesday.
Analysts said copper faced weakness in coming months as supportive buying from China tails off and ahead of a seasonally quiet market period.
"The buying spree that China went on in the first half of the year is going to be very difficult to sustain because it was largely fuelled by restocking, which is a finite process," said Gayle Berry, metals analyst at Barclays Capital in London.
"As a result we're going to see imports fall back over the next few months which, together with a seasonally weaker period for northern hemisphere demand, and continued concerns on the macro front, means it's going to be a tough couple of months for metal prices."
Equities swooned worldwide as rising yields on U.S. government debt fuelled concern that businesses and consumers could face higher borrowing costs.
With many markets across North Asia on holiday, including the Shanghai Futures Exchange, weaker sentiment filtered into London.
U.S. housing data on Wednesday sent mixed signals to investors. The number of unsold homes rose last month, stoking worries that prices have further to fall. But the data also showed existing home sales climbed in April to an annual rate of 4.68 million from a 4.55 million pace in March, slightly higher than market expectations for a 4.66 million-unit pace.
Later in the day, investors will focus on U.S. durable goods and new home sales data, and Chicago Midwest manufacturing data.
Copper inventories data was supportive. Stocks of copper at LME warehouses dropped by 2,150 tonnes to 317,125 tonnes. Cancelled warrants stood at 43,650 from 43,375 tonnes, according to LME stocks data.
Aluminum traded at $1,404 from $1,405. The relentless rise in LME stocks continued, jumping 16,550 tonnes to a new record above 4.2 million tonnes.
Used in transport and packaging, aluminum has come under pressure in recent months on downbeat data from auto makers.
Aluminum cancelled warrants were at 52,700 from 50,250 tonnes on May 26.
Battery material lead was at $1,440 from $1,445. Tin was at $13,475 from $13,600.
Worries about lead and tin supplies remain due to a dominant position controlling between 50 and 80 per cent of cash warrants on LME stocks.
Zinc traded at $1,449.75 from $1,460.
Steel making ingredient nickel was at $13,250 from $13,395. On Wednesday prices touched $13,900 but failed to crack resistance between $13,500 to $14,000 - the top of the trading channel since late October.
Nickel stocks rose 1,218 tonnes to 109,860 tonnes.
LME nickel stocks have fallen sharply since late April, when they reached above 114,400 tonnes. In April, Chinese nickel imports hit a monthly record of 21,031 tonnes.
Analysts said nickel has recently been supported by a slow trickle of re-stocking by Chinese steel mills, although speculative stockbuilding could also be a factor.
"While medium to longer term technical studies continue to improve with a major bottoming pattern appearing to be under construction, prices remain firmly range bound for the time being," brokerage Newedge said in a note.
It said that unless nickel made a clear and sustained break above there, further sideways activity was likely for the time being.
