Copper plumbed three-month lows on Monday after data showed a modest cooling in factory activity in China, the world's top consumer of the metal, and as the dollar rose versus the euro on the threat of war between Ukraine and Russia. Weekend comments from Russia that it had the right to invade Ukraine weighed on the euro, with Europe seen as vulnerable because of its dependence on Russian gas, part of which goes through Ukraine.
A stronger dollar makes dollar-priced metals costlier for non-US investors. Three-month copper on the London Metal Exchange fell 0.53 percent to $6,968 a tonne at the close, having earlier reached as low as $6,944 a tonne, the weakest since December 3. Copper is down more than 5 percent this year. Chinese factory activity shrank in February, a private survey found on Monday, reinforcing slowdown concerns already fanned by an official report that found activity had slumped to an eight-month low.
China consumes about 40 percent of the world's copper. "We think most of the copper that's been going into China (in) the last few months has been financing-driven, (plus) China doesn't need to come into the market to buy copper, so premiums are lower," Citi analyst David Wilson said. Robin Bhar, an analyst at Societe Generale, said copper prices could fall further after breaking through the $7,000 mark.
"Volatility could pick up, and the shorts could have more confidence applying pressure," he said. Traders shrugged off a positive reading that earlier showed China's services sector grew at its fastest pace in three months in February. "The (official manufacturing) index is now at its lowest level in eight months and is only just holding its own above the 50 mark that indicates expansion. The Chinese economy, in other words, is cooling," Commerzbank said in a note.
Investors will be closely watching China's National People's Congress annual session that begins on Wednesday for further clues on the demand outlook for metals. On the plus side for copper, hedge funds and money managers increased bullish bets by 10,348 lots to a net long position of 1,459 contracts in the week to February 25, their first net long in four weeks, data from the US Commodity Futures Trading Commission showed on Friday. In other metals, tin fell 2.51 percent to $22,950 a tonne at the close, while aluminium ended down 1.88 percent at $1,721 a tonne. Bhar said traders were likely to be booking profits after the contracts had risen significantly in recent weeks.
Zinc, meanwhile, ended down 0.14 percent at $2,069 a tonne, with cash zinc at a premium of $38 above the benchmark contract, the highest since August 2007, reflecting a lack of supply in the physical market. Zinc has been locked away by financing deals in LME warehouses, artificially choking supply of the metal and building up delivery backlogs. LME zinc stocks were at 757,950 tonnes, compared with around 62,000 in August 2007. Lead closed down 1.03 percent at $2,113 a tonne, while nickel edged up 0.07 percent to end at $14,730 a tonne.
