London Metal Exchange copper dropped 1.8% overnight to $US5784 per tonne, its lowest point since March.
According to ANZ Research, there has been some improvement in Chinese macro conditions in the past month, but signals were still mixed.
Copper slumped to a five-year low in January, but has recovered due to supply interruptions.
“However, a lack of subsequent indications of strong demand has seen the rally in copper prices peter out over the past month,” ANZ said.
“In the absence of a further lift in industrial activity, copper prices will likely continue to trade in a tight range around $6000/t in the coming months.”
ANZ expects base metals to be beholden to moves in the US dollar in the short-term, but its preferred picks are copper and nickel.
“A tightening market balance may eventually make itself felt in key markets (particularly nickel), but a continued weak demand backdrop in China is likely to keep the ‘glass half empty’ mentality intact,” it said.
The LME nickel price was back below $13,000/t overnight, posting its third consecutive loss to $12,915/t.
Nickel has traded below $14,000/t since mid-May, despite forecasts of a looming deficit due to the Indonesian export ban.
“While there seems to be a universal acceptance that the market will eventually tighten, the timing has been up for debate,” ANZ said.
“That said, the point at which the global nickel market moves into deficit and pushes LME prices higher does appear to be steadily approaching.”
ANZ believes there are four main data points which will point to a deficit – falling Chinese nickel pig iron inventories, increasing Chinese ferronickel imports, higher nickel pig iron prices, and falling LME nickel stocks.
“A fall in the LME inventory is the only missing link,” ANZ said.
“If LME nickel stocks began declining, we’d have greater confidence that the market has found a bottom, but until this occurs, the upside to nickel prices will remain limited.”
On bulks, ANZ predicts Chinese steel demand will start to wane and iron ore prices should fall back below $60/t over the next month, though the floor appears to have been set at $47/t back in early April.
And gold is expected to test $1100 an ounce in the short-term due to expectations of a strengthening US dollar and a surplus of physical gold in China.