Shanghai copper fell more than 3 per cent on Wednesday, tracking a steep drop on the LME as investors wound in profits on concerns China could see a weaker first half of next year.
Analysts said besides a rise in copper inventories, the selloff was fuelled by concerns about liquidity tightness in China towards the year-end, amid a government-led deleveraging push, and slowing investment in the country's power sector, a key driver for copper.
The “sluggish investment in power indicates copper demand in China may remain weak for a while,” Helen Lau, an analyst at Argonaut Securities, wrote in a note, adding that she expected to see “more downward pressure” on the metal over the short term.
The most-traded Shanghai Futures Exchange copper contract fell 3.8 per cent in morning trade before trimming the losses to trade down 3.1 per cent at 51,420 yuan ($7,774.18) a tonne by the mid-session interval, and still on course for its biggest one-day drop since November 2016.
The ShFE copper contract's slump took it below the 200-day moving average (DMA), a technical indicator, sending a bearish signal to markets.
LME copper
Three-month copper on the London Metal Exchange was trading up 0.3 per cent at $6,561 a tonne by 0441 GMT, having plummeted 4.2 per cent on Tuesday as inventories rose by over 10,000 tonnes. Prices saw the steepest daily drop since July 2015 in the previous session.
LME copper may test support at $6,492 a tonne, a break below which could cause a loss to the next support at $6,451, according to Reuters analyst Wang Tao.
Traders pointed to a large 3,500 strike at $6,500 in December copper put options, which could drag on prices.
Traders noted consistent buying but one said it was not sufficient to stop copper's selling momentum which was in line with profit-taking typically seen at year end. They are also wary that further weakness could spark margin calls by a large Shfe copper long.
Shanghai nickel was down 4 per cent, tracking a 4.6-per cent fall on the LME in the previous session to the metal's lowest level in nearly two months, as prices cracked below the 100-DMA, sparking more chart weakness.
ShFE zinc was down 2.6 per cent at 24,750 yuan a tonne. ShFE aluminium was down 2.1 per cent in Shanghai, hurtling closer to support at 14,000 yuan a tonne, and has now lost over 17 per cent since September 20 as winter production cuts in China turned out to be less severe than expected.
Indonesia had said on Tuesday it planned to acquire Rio Tinto's, stake in the Grasberg copper mine operated by Freeport-McMoRan Inc, potentially solving a drawn-out problem for all three parties.
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