SINGAPORE: Shanghai copper and aluminium fell by their 4 percent limits and London aluminium dropped to a five-year low on Tuesday as worries about slow demand overcame support from a soft dollar and plans to boost China's economy. Shanghai futures dropped 4 percent or 990 yuan to 23,570 yuan a tonne, while aluminium futures slipped to 10,355 yuan a tonne from Monday's settlement. London Metal Exchange aluminium shed almost 4 percent to touch $1,435, its lowest in over five years, and copper dipped as much as 3.8 percent to $3,050. "Shanghai went limit down in copper and aluminium and London chased the fall lower.
There isn't much upside potential in these markets right now," a trader in Hong Kong said. "People are looking at the dollar, but I think the weakness is creating an opportunity to sell metals rather than buy and we don't want to be wasting money chasing rallies that will get sold into." By midday, prices had recovered, with copper at $3,100 in London and 23,880 yuan ($3,487) in Shanghai.
The dollar fell to a two-month low against the euro as expectations mounted that the Federal Reserve will cut interest rates to near zero later in the day.
Usually a decline in the greenback supports dollar-denominatated assets like base metals by making them cheaper for holders of other currencies. "It's a little disappointing that the dollar has gone from $1.25 to $1.37 against the euro in the space of a week or so, and had such little impact on metals," ANZ senior commodities analyst Mark Pervan said.
"The focus remains on the data. We had another batch yesterday that was pretty awful which makes it hard to see a rebound in the near term. Every time the market gets back on its feet, it gets knocked down again." Pervan said a lot of downside risk had been priced into base metals, and the wider commodity complex, and expected prices to trade sideways until the end of the year unless the dollar sees a reversal of fortune, which would seriously undermine prices. The single currency extended gains above $1.37 ahead of the outcome of the Fed policy meeting, widely expected to result in a rate cut of at least a half percentage point to 0.50 percent.
Data on Monday showed U.S. November industrial output fell 0.6 percent versus October's 1.5 percent rise , and there remain worries about the fate of U.S. automakers after lawmakers last week failed to agree on a resue plan.
