NEW YORK/LONDON: Copper lost some ground on Monday as a lack of clear resolution to Europe's funding crisis continued to be a major headwind for investors, clouding global recovery prospects, and with it, demand for industrial metals.
Other metals ended in positive territory, however. Aluminium was underpinned by production cutbacks, while zinc, lead and nickel were helped by the prospect of output reductions and the fact that prices are near production costs.
Three-month copper on the London Metal Exchange closed at $7,496 a tonne from $7,580 at the close on Friday. The metal, used in power and construction, lost 21 percent of its value last year - the first drop in two years.
In New York, the key March COMEX copper contract settled down 1.9 cent at $3.4160 per lb.
"Copper and the industrial metals are going to be held back pretty significantly if we do not see Europe resolve this situation," said Zachary Oxman, managing director with TrendMax in Encinitas, California.
"In 2012, you're going to see the industrial metals underperform against the precious metals. At this point, the spread would be to buy precious and sell industrials, and I think that spread widens."
Data from the US Commodity Futures Trading Commission showed money managers continued to hold a bearish stance in copper for the week ended Jan. 3, a bet they have held on to for the past 16 weeks, as European debt jitters and signs of slowing growth in top consumer China dampened demand prospects.
Reinforcing demand concerns, the Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, fell to its lowest in nearly five months on Monday.
Attention was focused on a meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy on the region's debt crisis. Merkel and Sarkozy insisted after talks in Berlin that private sector bondholders must share in reducing Greece's debt burden, along with new European and IMF lending.
"As much as US numbers are improving, there is nothing positive coming out of Europe," said VTB Capital analyst Andrey Kryuchenkov.
He added: "The crisis in Europe is affecting exports in China, and for the Chinese to start restocking we need to see price pullbacks."
Copper had firmed on Friday after data showed US employment growth accelerated last month and the jobless rate dropped to a near three-year low, the strongest evidence yet the economic recovery is gaining steam.
GERMAN EXPORTS UP IN NOVEMBER
Limiting falls in copper, data earlier showed German exports jumped in November, suggesting fourth-quarter gross domestic product for Europe's bulwark economy may be stronger than expected, though its industrial output that month was subdued.
Looking ahead, investors are awaiting trade data from China, due on Tuesday, to gauge whether the world's largest consumer of copper is continuing to import more metal on a monthly basis.
"Given the fact that prices in China have held up better than elsewhere, traders have the incentive to import more metal into China," Credit Suisse said in a note.
"Rising metals imports would be positive for prices, in our view. However, we would not become overly optimistic just yet. European politics could still trigger erratic price moves this week."
A busy week of government bond issues is planned in Europe featuring triple-A issuers Germany, the Netherlands and Austria and capped by sales of new debt by Spain and Italy on Thursday and Friday.
The debt auctions are expected to total more than 21 billion euros.
Aluminium closed at $2,108 per tonne, from $2,069.
Last week, Alcoa, the largest US aluminium producer, said it would close its smelter in Alcoa, Tennessee, and two potlines at its Rockdale, Texas, smelter, representing 7 percent of the company's total capacity.
It also plans to curtail aluminium production in Italy and Spain. The plants are among the highest-cost in the Alcoa system, the company said.
Refined tin shipments from Indonesia, the world's top exporter, nearly doubled in December after smelters abandoned a self-imposed shipping stoppage and released stocks.
Lead closed at $1,966 a tonne from $1,959, nickel at $19,100 from $18,700, and zinc closed at $1,879 from $1,853.
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