Copper slipped from a record above $9,000 (U.S.) a tonne in London Tuesday, as euphoria over a deal to extend U.S. tax breaks faded, prompting investors to cash in on a six-day rally that boosted values by nearly 11 per cent.
Copper led a broad-based charge in the base metals complex, after news that U.S. President Barack Obama reached an agreement to extend the Bush-era tax cuts for two years.
The deal was seen as a stimulus for the economy, boosting appetite for global stocks, commodities and riskier assets.
But copper's rally to all-time peaks turned out to be short-lived as the euro relinquished gains against the dollar, making metals priced in the U.S. currency less attractive.
"A lot of it is buy the rumour, sell the news of the tax bill going forward," said Bill O'Neill, partner at LOGIC Advisors in Upper Saddle River, N.J.
Still, copper kept some of its gains even as other commodity markets such as gold and crude oil turned lower, as supply-side concerns mounted.
In a move seen supporting prices, ETF Securities said it would launch the first exchange-traded commodity products backed by industrial metals on Dec. 10.
A copper ETF could slice 185,000 tonnes away from a market already seen in a 400,000-tonne deficit next year.
London Metal Exchange data showing a single entity held 50 to 80 per cent of copper cash warrants added to the tightness, helping to keep a premium for nearby material firmly above the benchmark contract since November.
LME copper for three-month delivery was untraded at the close but bid at $8,880 a tonne, paring gains after hitting a fresh all-time peak of $9,044.
COMEX copper for March delivery gained 4.15 cents to end at $4.0495 per lb, away from a session high at $4.1315, a record for the fourth position futures contract.
"A weaker dollar and risk sentiment is what has been driving (prices) higher ... There is an increasing worry about shortages on the physical side and that has also contributed to the move," Danske Bank analyst Christin Tuxen said.
"The idea of supply constraints is especially important for copper and you are also seeing rising demand from emerging markets, so you are having this perfect storm that is building."
ETF Securities' announcement added to copper's bullish outlook.
"Copper is in deficit next year, we can't say for certain (what the impact will be) because you need to see what the interest from the investment community will be," VTB Capital analyst Andrey Kryuchenkov said.
Apart from the potential launch of ETPs, prospects are for higher copper prices when consumers need to restock early next year, analysts said.
"The deficit (is seen) increasing by varying estimates of between 200,000 and 400,000 tons during 2011 and 2012 at a time when consumers are still operating low inventory levels," Sucden Financial said in a research note.
The latest LME data showed copper stocks fell by 1,000 tonnes to 351,375 tonnes - down 37 per cent since February, when stockpiles at LME warehouses stood at 555,075, the highest since October 2003.
"The ever-depleting stocks are signaling increasing levels of consumption," Sucden added.
ZINC PLAYS CATCH-UP
Copper's advance had also fuelled momentum across other metals, with zinc rallying as much as 5 per cent before paring gains later in the session. It closed up $85 at $2,305.
"Zinc has lagged behind the other metals like copper and at one point it was $200 below lead. Volumes were good overnight in Asia and we have seen buy stops triggered this morning. It looks like it could have further to run," an LME floor trader said.
Lead rose $45 to $2,398 a tonne and nickel jumped $495 to $24,095. Aluminum closed flat at $2,305 a tonne, while tin shed $450 to $25,100.