Copper falls on Libyan unrest, rush for less risk

NEW YORK/LONDON: US copper shed 3 percent in record volume on Tuesday, hitting its lowest price in more than three weeks as unrest in Libya caused investors to flee assets with perceived risk.

In a broad base metals rout, three-month copper on the London Metal Exchange gapped lower at the open to a session low of $9,575 a tonne, last seen on January 28. It found some support as the dollar gave up early gains and copper closed at $9,580 a tonne, versus $9,810 on Monday.

Some speculators who were long copper accelerated the downdraft by rushing to take profits as prices retreated further from a record high at $10,190 hit on Feb. 15.

In New York, COMEX copper for March delivery settled down 13.50 cent, or 3.01 percent, at $4.3470 a lb. After hours, it continued falling to a $4.3080.

US copper futures had their busiest volume day ever at more than 86,000 contracts, surpassing the previous record of 76,582 set Feb. 16, according to COMEX records.

Risk aversion led to the massive sell off in metals, along with many other commodity markets. Defiant Libyan leader Muammar Gaddafi faced a nationwide public revolt against his rule, stoking worries over oil supplies from one of the world's major oil exporters and an OPEC member.

Gaddafi vowed to die in Libya as a martyr while threatening to quash the latest in a wave of protests across North Africa and the Middle East that this year has already deposed the leaders of Tunisia and Egypt.

"Investors are just looking to shed risk today. Interest rates are falling, equities are getting whacked, and metals are falling. People are taking risk off the table," said Matthew Zeman, head of trading with LaSalle Futures Group in Chicago.

Despite the sharpness of the price declines, some analysts pointed out that demand remains brisk for industrial materials like copper and view the latest sell off as a healthy correction that could draw buyers before long.

Data on Tuesday showed US consumer confidence rose to a three-year high in February, but a drop in home prices for the sixth month in a row in December suggested the economy still faces significant hurdles.

"It's nice that data in the U.S is continuing to look okay, but ultimately what really matters is demand from the developing countries, and there the story is one of increasing concerns about inflation," said Natixis analyst Nic Brown.

"If oil prices push up because of events in Libya, that will exacerbate inflationary pressures. That is the main story, and that is pushing down on base metal prices," he said.

WORRYING

Keeping up pressure on copper, stocks of the metal in LME warehouses last rose 275 tonnes to 411,750 tonnes, their highest since August 2010.

Investors have worried that a recent rise in stocks indicate falling demand, but copper prices still look underpinned by concerns about tightening in the market.

The world copper market had a deficit of 400,000 tonnes in January to November of 2010, compared with a surplus of 98,000 tonnes in the same period the previous year, an industry report showed on Monday.

Aluminum closed at $2,528 a tonne from $2,580. Aluminum stocks rose a mere 25 tonnes, but, at 4,621,350 tonnes, are just 19,400 tonnes off a record high hit on Jan. 20 2010.

Zinc closed at $2,490 from $2,596 a tonne and lead was last bid at $2,565 a tonne from $2,569/2,571.

Tin was last at $31,650, down from the previous day's evening evaluation at $32,350. Nickel closed at $28,650 from $29,300 a tonne.