LONDON: Copper tumbled more than six percent to two-week lows on Thursday as markets priced in a deteriorating economic outlook and lower metals demand, given fading prospects that a deal to buttress the euro zone rescue fund will be reached at crisis talks this weekend.
Metals, seen as a proxy for underlying economic conditions due to their wide use in industry, were heavily hit on fears of a slowdown; lead, zinc and aluminium all plunged to their lowest in more than a year.
Their decline far outstripped those of other commodities markets, where oil and agriculturals were down between one and two percent, while key share indicies in Europe and the US shed a lighter one percent in value.
Benchmark copper on the London Metal Exchange (LME) closed at $6,735 a tonne, down 6.6 percent from $7,210 per tonne on Wednesday.
It hit a session trough of $6,710 a tonne, its lowest in two weeks, and was on course for its fourth consecutive day of losses and for a drop of more than 10 percent this week. It is now within reach of its 2011 trough of $6,635 hit earlier this month.
"People are saying these metals are not trading on the fundamentals, they are trading on the macro, but there is nothing more fundamental in the world than the economic outlook," analyst Stephen Briggs of BNP Paribas said.
"The bank's (BNP Paribas) view is that Europe will muddle through and find a solution, but clearly the market is worried that that might not be the case," he added.
A high-profile EU summit will go ahead on Sunday as planned, according to sources in Germany's ruling coalition, but it will not reach a decision on leveraging the euro zone rescue fund, the European Financial Stability Facility(EFSF).
Sentiment briefly improved after the Federal Reserve Bank of Philadelphia said its index of business conditions in the US Mid-Atlantic region rose in October with shares in Europe paring losses.
Factory activity in the US Mid-Atlantic region unexpectedly expanded in October to its highest level in six months, rebounding from a weak reading the month before, a Federal Reserve survey showed on Thursday.
But currency markets remained volatile reflecting wild fluctuations in market mood, before the euro fell to a session low against the dollar as fading prospects for a euro zone debt deal were priced in.
Also, US manufacturers struck a note of caution during the reporting season about prospects for the domestic economy on Thursday, sounding particularly gloomy on construction markets even while reporting quarterly profits that generally beat Wall Street expectations.
WARY CUSTOMERS
BHP Billiton , the world's largest miner, displayed caution in the face of short-term market volatility, warning on Thursday of increasingly wary customers, although it said its order books were full due to resilient Chinese demand.
"We are also seeing that customers are looking closely at their inventory levels as they operate their businesses, cognisant of the potential need to tailor their plans if the global economic uncertainty continues," Chief Executive Marius Kloppers said in London.
Customer buying interest remained strong, he said, fuelled by China, where domestic stockpiles have been "substantially liquidated."
China is the world's largest copper consumer, accounting for roughly 40 percent of global demand of refined metal. Signs that Chinese buyers have returned to international markets quelled some concerns that China's tightening measures, or the European debt crisis, will impair copper demand.
Monthly imports of copper products rose to a 16-month high in September.
"Anecdotal reports suggest Shanghai bonded warehouse stocks are now sub 200,000 tonnes," said Standard Bank in a note.
"With competitive storage costs, elevated spot physical premiums for bonded material, and with the market outside China looking particularly moribund at the moment, it perhaps makes sense to restock and recharge bonded warehouse inventories," it added.
Zinc , used to galvanize steel, slid 5.3 percent to $1,740 from $1,838 at Wednesday's close. It hit a session low of $1,718.50 a tonne, its lowest since July 2010.
The global refined zinc market will see a surplus of 317,000 tonnes this year and a more modest excess of 135,000 tonnes in 2012, the Lisbon-based International Lead and Zinc Study Group (ILZSG) said on Wednesday.
"We continue to think the zinc market is better balanced than these data suggest and, from a fundamental perspective, the zinc price should probably be stronger than today," Macquarie said in a research note.
"However, for the moment, financial market fears appear to be outweighing the more positive physical market picture, with the result there may be good buying opportunities ahead."
Battery material lead also fell to a 15-month low of $1,775.00 a tonne, before closing at $1,790 from $1,870 at the close on Wednesday.
The global lead market was in surplus by 153,000 tonnes in the first eight months of the year, ILZSG data showed.
Tin closed at $21,200 from $21,925 down 3.3 percent while aluminium ended at $2,085 from $2,182, having fallen to a trough since Sept. 2010 at $2,077.75 Nickel ended at $18,025 from $18,800, down more than 4 percent.
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