Copper falls as euro zone tensions rise

LONDON: Copper fell to the lowest in two weeks on Monday as the mounting debt crisis in Italy heightened fears about the knock-on effect on the global economy, fuelling a flight out of riskier assets such as metals.

Zinc, tin, lead and nickel also succumbed to the fall, along with world stocks and the euro, spooked by the political and economic crisis in Italy, which has raised the prospect of a split in the euro zone.

Borrowing costs for the country, Europe's third-largest economy, is near unsustainable levels and the bloc is unable to afford a bailout.

"Clearly the whole concern about the euro zone, Italy in particular, in the last few days is helping to drag down risk appetite across the board," Dan Smith, head of metals research at Standard Chartered, said.

"We're seeing dollar strength, seeing equities come off, and commodities are really being dragged down by the whole wider fall."

Three-month benchmark copper on the London Metal Exchange fell to an intraday low of $7,357 per tonne, the lowest since Oct. 24, before recouping some losses to $7,432, down around 2.5 percent from Wednesday's $7,621 close.

The metal trimmed some of its losses after the emergence of former European Commissioner Mario Monti as a favourite to replace Silvio Berlusconi as prime minister and form a new government to stave off a run on Italian bonds.

A stronger dollar against the euro added pressure on metals prices. The euro languished near a one-month low against the dollar on Thursday. A stronger dollar makes metals more expensive for holders of other currencies.

CHINA DATA

Besides pessimism over the euro zone, recent data from China has hinted at an economic slowdown in the country, a big metals consumer.

A flurry of figures on Wednesday showed that China's factories are bearing the brunt of a modest economic slowdown even as consumer spending and investment in assets such as roads and other infrastructure remain resilient.

Numbers on Thursday showed the country's copper imports rose for the fifth straight month in October, but a fall in iron ore shipments highlighted the risks for raw materials linked to real estate.

"If you look at the data from China for copper, and for aluminium, it's pretty good numbers," Smith said. "The fabricated side of it is doing well, the imports of copper were very strong, and the physical market is very tight."

Union workers at Freeport McMoRan Copper & Gold Inc Grasberg copper mine in Indonesia said on Wednesday they could extend their strike by another month, which would make it the longest mining stoppage in the country's history.

The strike forced Freeport to declare force majeure on concentrate shipments in late October and raise doubts it can meet fourth-quarter output and sales targets.

In Peru, a regional government has given striking workers and Peru's No. 3 copper mine Cerro Verde five days to end a six-week-old conflict before calling on the central government to resolve it, a labor relations official said.

The mine produces 2 percent of the world's copper and is controlled by Freeport.

"We would emphasize that physical markets have remained tightly supplied despite some moderation in activity," Credit Suisse said in a note. "This is mirrored in sizeable outflows of exchange inventories across most metals recently."

Copper inventories continued to fall, and were down 2,125 tonnes, at 410,025 tonnes, latest data showed. Stocks of aluminium shed 4,050 tonnes to 4.53 million tonnes, and are at around the lowest since August.

Standard Chartered's Smith sees further prospects for prices to fall in the short term on concerns about Europe. "But it is a very short-term play and we remain very bullish on these market in a medium-term prospective."

Three-month aluminium was off 0.14 percent at $$2,122 per tonne from $2,125 at the close on Wednesday.

Zinc was down 3 percent at $1,876 from $1,934, lead was off 2.4 percent at $1,930 from $1,978, tin lost 3.6 percent to $21,210 from $22,000 and nickel dipped 0.3 percent to $18,100 from $18,050.

Copyright Reuters, 2011