LONDON: Copper fell to a five-week low on Monday, after a downgrade to the United States' credit rating intensified fears of a global slowdown which could cut into copper demand, but European Central Bank bond buying soothed investors' nerves for now.
Traders said that some consumer bargain-hunting was in evidence, but that much buying was hand to mouth, as potential buyers waited to see if prices would fall further.
Benchmark three-month copper on the London Metal Exchange traded at $8,965 a tonne at 0945 GMT, down from a close of $9,040 a tonne on Friday.
The metal used in power and construction earlier fell to $8,950, its lowest since late June. It tumbled by 7.9 percent last week, in its largest weekly fall since June 2010.
"With many markets pricing more fear than fundamentals at the moment, buyers may still be a bit cautious," analyst Duncan Hobbs of Macquarie said.
"Unless you needed to buy physical material today, looking at the short-term trajectory of exchange-traded commodities, you might think, 'I would have a better chance to buy if I hold off a little while.'"
The European Central Bank stepped into bond markets on Monday, backing up a pledge to support Spain and Italy with the aim of averting financial meltdown in the euro zone, while the G7 and G20 offered soothing words to investors shaken by a historic downgrade of the US debt rating.
Volumes of three-month copper on the LME were on track for their highest for the year, with nearly 15,000 lots, or about three-fold typical volumes, traded by mid-morning, suggesting that copper's correction has enticed buyers.
But analyst consensus was mixed. Some like Goldman Sachs are reiterating copper's value at current levels, given its allure as a hard asset during times of monetary expansion, and also its exposure to emerging market growth.
Others said that given questions over global economic growth and the industrial slowdown in the northern hemisphere summer, prices maybe entering a protracted soft patch.
"I fancy copper and other base metals to weaken over the next month, but don't see a repeat of the H2 2008 collapse," analyst David Thurtell of Citi said.
"The copper market is in deficit, and we can expect the Chinese to restock on bouts of price weakness. But the '$11-12K by end 2011' call by other houses is looking increasingly doubtful in the current environment," he added.
CHINA DEMAND
The differential between London and Shanghai copper prices which turned positive last week should encourage Chinese consumers to import metal.
The LME-Shanghai Futures Exchange price differential reached its most favourable levels since August last year.
China is the world's biggest consumer of metals, accounting for around 40 percent of refined copper consumption in 2010.
"The industry is buying at these lower numbers that's for sure," an LME trader said.
The trader said if copper breaks down much below $8,950 it may attract fresh system-based sales, and even trigger some speculators to go short, or bet that prices will fall further.
In other metals, aluminium bounced to $2,425 from $2,400 on Friday's close, which was its lowest since late January. Aluminium has been underpinned by expectations power cuts in China will crimp domestic supply and it may have to come back to the international market.
Tin plunged more than 5 percent to $22,400, its lowest since September 2010, before settling at $23,050 from $24,350. At the start of the year, tin's tight fundamentals suggested it would be a star performer this year, and attracted speculative inflow that is now being forced out.
LME zinc, used in galvanizing was at $2,171 from $2,200 on Friday's close.
Battery material lead was at $2,333 from $2,360.
Nickel was at $22,180 from $22,505.
COPYRIGHT REUTERS, 2011
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