ET: Copper at 1-week low on China, Eurozone growth woes
LONDON: Industrial metals fell on Tuesday, with copper dropping to its lowest in a week due to a weaker euro and on signs of a slowdown in the pace of economic growth in China, the world's top copper consumer. Slowing manufacturing growth in China and the euro zone dented sentiment, weighing on European shares, and hitting metals.
Nickel matched a low hit in early May while zinc and lead tumbled around 4 percent. Copper for three months delivery on the London Metal Exchange fell to $6,700 a tonne, after falling as low as $6,678 a tonne, its lowest since May 25 and versus $6,939 a tonne on Friday.
"The market's weakening on Chinese PMI data," said analyst David Thurtell at Citi, referring to China's official purchasing managers' index (PMI) which dropped to 53.9 in May from 55.7 in April. In the euro zone, manufacturing expanded in May, but at a far slower rate than April's 46-month high.
Moreover, a warning from Chinese Premier Wen Jiabao on Monday that global economic growth remained vulnerable to sovereign debt risks and the possibility of a second downturn also spooked investors, traders said. "I guess there's also a bit more follow through from Friday's late sell off when the euro was sold off when Spain was downgraded by Fitch," Thurtell said. Fitch Ratings agency downgraded Spanish sovereign debt to AA+ on Friday.
The euro fell to a four-year low versus the dollar as fears the euro zone's debt crisis could spread to its banking system hit the single currency, while deteriorating sentiment supported the greenback. A weaker euro makes metals more expensive for non-U.S. investors.
A warning from the European Central Bank (ECB) that euro zone banks face up to 195 billion euros in a 'second wave' of potential loan losses over the next 18 months due to the financial crisis also dampened sentiment. Investors will focus on key macroeconomic data from the United States, a major metals consumer.
"Shanghai copper's fall on Monday suggests that the underlying sentiment in China is on the bearish side," a trader in Shanghai said. LME copper stocks were down 1,150 tonnes at 475,575 tonnes; their lowest since mid-December 2009 but was not enough to lift prices.
Technically, copper was expected to weaken. In a short-term view, Reuters analyst Wang Tao said copper could dip to $6,661.50, based on hourly charts. Copper seen as a gauge for economic activity, has fallen around 10 percent since the start of the year, while May saw commodity prices measured by the Reuters/Jefferies CRB fall more than 8 percent, their weakest in 18 months.
However, investors continued to see commodities as a lucrative bet for the longer run as the second largest public pension fund in the United States was readying for its first investment in commodities to hedge against inflation, the Financial Times newspaper reported on Tuesday. LME aluminium fell to $1,995 a tonne from $2,042 a tonne, while nickel was down at $20,500 a tonne from $21,350. The key stainless steel ingredient fell to $20.450 a tonne, a low last seen in early May. Tin was at $17,475 a tonne from Friday's $17,900.
