Copper prices slumped on Tuesday as investors liquidated recent bullish positions over fears that a new strain of coronavirus in China could hit economic growth in the world's top metals consumer.
The metal often used as a gauge of economic health also suffered after inventories in London Metal Exchange-registered warehouses jumped by a third overnight, providing a boost to supplies in LME depots after months of erosion.
The death toll from a mysterious flu-like virus in China climbed to six on Tuesday as new cases surged beyond 300, with fears of further outbreaks as millions of Chinese travel for the Lunar New Year holiday.
Many Chinese traders are also closing their positions before taking time off for the holiday.
"The sector is taking a bit of a tumble. Even though it's on a relatively small scale right now, it (the virus) just hits confidence, having a dampening impact on the otherwise risk-on climate that's we've had so far this year," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
Funds are net long of the CME copper contract for the first time in nine months and the speculative net long position on the LME had grown to 15% of open interest on Friday, according to estimates by broker Marex Spectron.
"A lot of these recently established longs are potentially getting close to being out of pocket and that's adding to the selling pressure," Hansen said.
Benchmark LME copper shed 1.6% to $6,160 a tonne in final open-outcry trading, the biggest one-day loss since Oct. 31. It earlier touched $6,150, its weakest since Jan. 8.
The most-active copper contract on the Shanghai Futures Exchange closed 1.4% down at a six-week low of 48,420 yuan a tonne.
LME copper inventories surged by 38,700 tonnes to 162,925 tonnes, daily LME data showed. Until the big inflows, stocks had shed 63% since their peak last August.
The global world refined copper market showed a deficit of 33,000 tonnes in October, down from 89,000 tonnes in September, data showed.
The premium of LME cash zinc to the three-month contract has increased to $22.25 a tonne, its highest since Nov. 29, having swung from a discount of $3.50 on Dec. 11. The premium indicates tighter availability of LME supplies.
LME aluminium rose 0.7% to close at$1,824 a tonne while zinc gained 0.4% to $2,454.50 and nickel dropped 2.6% to $13,665.
Lead finished unchanged at $1,961 while tin slid 1.5% to $17,575 after touching its strongest since last July at $17,970.
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