LONDON: Copper prices fell below $8,000 to a three-week low on Wednesday as the dollar rose and worries about the impact of political turmoil in Greece and the euro zone debt crisis sapped demand for risky assets, raising fears about the demand outlook for metals.
Benchmark copper on the London Metal Exchange (LME) fell 1.6 percent to $7,965 a tonne from Tuesday's close of $8,095. It earlier hit its lowest level in three weeks at $7,949.75 a tonne.
Greece moved closer to a second snap election on Wednesday when the head of the biggest party launched a new attack on radical leftist Alexis Tsipras, saying his plans for a new government would push the country out of the euro zone.
The political uncertainty pushed the euro close to a recent three-month low against the dollar, as the dollar rose against a basket of currencies which put pressure on commodities priced in the US currency.
"It (the situation in Greece) has made the market concerned about sovereign debt issues again and whether or not there will be a reversal of the fiscal austerity measures that had been put in place. That is acting as a weight on base metals prices in the short term," Gayle Berry, an analyst at Barclays Capital, said.
"But when you look at the fundamental backdrop for the metals, it is hard to see too much downside. For copper when you start getting into the mid-7,000 level you would see some buying interest coming in at those levels."
Copper has fallen about 8 percent from this year's peak of $8,765 reached in February amid a shaky global economy.
"I am a little bearish as the euro has been pointing down and copper has slowly drifted with it. I think copper may go lower," an LME trader said.
Top copper consumer China may be the only hope for a recovery in prices. Analysts are looking to a raft of Chinese data this week, which is expected to show the world's No. 2 economy has bottomed out as inflation slows and output picks up.
STOCKS FALL
Declining copper inventories helped cap further falls in copper prices. The latest data showed copper stocks dropped by 7,525 tonnes to 220,925 tonnes, the lowest since October 2008.
"What would be important is how much metal comes out of China. If we see more significant exports from China, that could reverse the decline in LME inventories," Berry said.
"That is going to be key in terms of short-term copper price direction because if we see a reversal in LME inventory trends, combined with a weakening in short-term macro sentiment, that would mean you would see a bigger drop in copper prices."
In industry news, commodities trader Glencore, in the process of merging with miner Xstrata, said first-quarter activity in its closely watched marketing arm was robust, while it posted higher output from major growth projects.
BHP Billiton, the world's largest miner, said it was merging its nickel and aluminium units into a single group in the hopes of improving their efficiency.
Aluminium was down 0.8 percent at $2,040 from Tuesday's close of $2,057 a tonne. It earlier hit its lowest level since late December 2011 at $2,025. Zinc, used to galvanize steel, was down 2 percent at $1,935 from $1,975.
Nickel fell 1.1 percent to $17,160 from $17,355, having earlier hit its lowest level since December 2011 at $17,070. Tin was $20,700 from Tuesday's close of $21,500.
Tin exports from Indonesia, the world's top exporter, fell to 7,489.26 tonnes in April from 9,708.45 tonnes a year ago, a senior trade ministry official said.
Lead fell 1.7 percent to $2,054 from Tuesday's close of $2,090 a tonne.
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