MSN: Copper slips on euro zone caution, Fed policy eyed
LONDON (Reuters) - Copper fell on Wednesday as concerns about spreading European sovereign debt troubles kept investors cautious, although hopes the Federal Reserve could offer more stimulus for the U.S. economy helped support the outlook for demand and limit falls in base metals.
Three-month copper on the London Metal Exchange (LME) fell by 0.8 percent to close at $7,545, down from Tuesday's close of $7,609 a tonne.
The metal used in power and construction is down more than 10 percent so far this quarter and is trading around one percent lower for the year to date. Aluminum fell alongside energy prices to a new two-year low.
Fears lingered that Spain's debt crisis could spiral out of control, with its soaring borrowing costs showing that a euro zone deal to lend its banks up to 100 billion euros ($126 billion) had not solved its problems or restored investor confidence. It also suggests more aid may be needed to fix its finances.
"The markets are now really very short, but there is a reason for that. Sentiment has really deteriorated about the growth outlook and people now are more concerned about China than they were even a few months ago," analyst Gayle Berry of Barclays Capital said.
"Risks are going to stay until there is some real action on sovereign debt. Some of the short covering we saw yesterday has eased off as well," she added.
The U.S. Federal Reserve concludes a two-day policy meeting on Wednesday, and expectations are high that the central bank will extend its bond-buying program dubbed "Operation Twist" to shore up the economy.
The liquidity hit provided by previous doses of Fed stimulus has lifted riskier assets, and financial markets have become highly sensitive to expectations of further moves, with global equities and commodities tending to rise and the dollar coming under pressure when action is seen as increasingly likely.
"Should the Fed announce more QE, indications are that gold, silver, Brent and aluminum are likely to move higher with the most certainty," Standard Bank said in a note.
"We also note that metals where we may see some short- covering are likely to perform better in the very short term... Looking at LME open interest and price behavior, we believe that, like platinum, lead and nickel may see the most short-covering should commodities rally strongly."
Also adding to volatility overnight will be the China HSBC manufacturing flash PMI for May which may give further clarity on the economic health of the world's top metals consumer.
ALUMINIUM TROUGH
Aluminum fell to its lowest since June 2010 at $1,902 a tonne, tracking copper and energy, and due to an oversupply glut.
Producers have kept smelters churning despite the tenuous outlook for global growth due to high demand for their products from financiers who are able to lock in small but low risk profit as set costs for storage and capital costs fall below the aluminum forward price curve.
Daily average primary aluminum output in May dropped to 67,900 tonnes compared with a revised 68,100 in April and 69,900 in May 2011, provisional figures from the International Aluminum Institute (IAI -0.09%) showed.
"The IAI production data for May released today suggests that apparent demand for aluminum was strong in May," an analyst at a U.S. fund said.
"Although demand is holding at decent levels, unless we get supply cuts and/or increased monetary stimulus soon, aluminum might be a victim of further price falls. CTAs (momentum sellers) are selling as they anticipate poor northern hemisphere summer demand," he added.
Aluminum ended at $1,905 from $1,925.50.
In other metals, zinc finished down 1.7 percent at $1,867 a tonne from Tuesday's close of $1,899 while lead lost 1.6 percent to end at $1,882 from Tuesday's close of $1,912.50.
Tin finished at $19,200 from Tuesday's close of $19,530 while nickel bucked the trend to close ahead as shorts covered at $17,200 from $17,095 a tonne.
