WSJ:BASE METALS: LME Metals Slide In Asia; Dollar Drives Selloff
By Clementine Wallop
Of DOW JONES NEWSWIRES
SINGAPORE (Dow Jones)--Base metals prices fell in Asian trading Monday in a selloff sparked by a sharply stronger dollar and worsening sentiment as concerns over the Greek debt crisis plagued the market.
Three-month copper dropped as low as $8,950 a metric ton, down $90 from its previous settlement at $9,040/ton. At 0601 GMT, the contract was trading at $8,967/ton.
Heavy selling in Asian hours was driven by a rally in the dollar, which was trading at 1.4131 against the euro compared with 1.4190 earlier in the day. Dollar-denominated commodities, including metals, become more expensive to investors holding other currencies when the greenback firms.
The euro softened as fears about Greek debt contagion troubled investors and concerns over the health of the Italian banking sector carried over from last week, when Moody's Investors Service said it may cut the ratings of 16 Italian banks.
Base metals will likely track the currency markets until Wednesday, when a Greek government vote on new austerity measures will give direction. If the measures aren't voted through, investors could look to sell base metals in a bid to reduce exposure to riskier assets.
Monday's losses came against a background of continuing nervousness in the euro zone, the U.S. and China, which is a major consumer of metals for manufacturing and infrastructure projects.
"Since the middle of the month, prices have been quite stagnant," Standard Chartered Commodity Analyst Judy Zhu said. "There's not too much upside because of uncertainty in the market. She pegged support for the red metal at $8,900/ton.
If there is a break below that psychological level, copper's next technical support is at $8,500/ton, a level not seen since mid-January, she said.
Lingering worries in China about Beijing taking further steps to tighten monetary policy are putting off investors who had been hoping to see large-volume Chinese buying after aggressive destocking in the first quarter of the year, Zhu said.
"We have heard rumors that some small- and mid-sized companies are having problems with their cash flow, which may impact demand for base metals, and especially copper," she said.
Regardless of cash flow, the third quarter is a seasonally weak period for copper consumption, which usually peaks in April, May and June, she said.
"Demand is not that bullish. The end of destocking does mean immediate restocking."
Aluminum saw the narrowest losses Monday, falling just 0.4% to $2,490/ton. The light metal is taking support from strong near-term fundamentals and stock draws from LME bonded warehouses.
Aluminum inventories dropped a net 10,825 tons Friday to 4,544,725 tons, with most deliveries made out of sheds in Indonesia, South Korea and the U.S.
Total inventories are down 1% from a week ago. As much as 75% of stock in LME warehouses is thought to be tied up in long-term financing deals--where buyers store metal in warehouses to be sold later at higher prices in a contango market--but last week's stock draws have stoked hopes that some pacts are coming to an end and material is being made available to consumers.
The following are LME three-month base metals prices at 0601 GMT and the changes from the previous PM kerb:
