Copper declines

Copper fell to its lowest since late October on Wednesday on a stronger dollar and worries that a potential political deadlock in Italy and a possible debt crisis could rise Europe into recession. Three-month copper on the London Metal Exchange fell to a session low of $7,580 a tonne, its lowest since October 26, before closing at $7,621 , down from a finish of $7,800 a tonne on Tuesday.
The metal used in power and construction hit a one-month high of $8,280 a tonne in late October but has not been able to maintain momentum because of uncertainty over the global economic outlook and signs of a slowdown in top consumer China. "It's another one of those situations where just as you think the situation in Europe is getting better, you realise that the whole political process in Europe is much more drawn out and tortuous than you might hope," said analyst Nic Brown at Natixis.
"Either Italian politicians will have to get their acts together, or some kind of bailout will be necessary. So it's not entirely surprising that equity markets have taken it badly and metals are following on," he added. Stocks and the euro sold off as Italian borrowing costs reached a breaking point, and investors feared the eurozone's third largest economy could be facing a debt crisis similar to that of Greece.
With a debt burden of about 1.9 trillion euros, Italy is considered too difficult to bail out, and a default would probably dry out credit and bring Europe to a recession. Italian Prime Minister Silvio Berlusconi on Wednesday confirmed he would resign after implementing urgent economic reforms demanded by the European Union and said Italy must then hold an election, in which he would not stand.
The dollar rose against a basket of currencies, making metals more expensive for holders of other currencies. While European economic headwinds continue to buffet the region's demand estimates for metals, there have been signs of growing pressure on copper supplies in China.
"There are...indications that metals demand in Europe is slowing, with metal-consuming companies trying to keep their onsite inventories as low as possible," said Credit Suisse Private Banking in a note. "At the same time, demand in Asia looks strong. In the current uncertain environment, sideways trading has to be taken as a good sign...The next one to two weeks will show whether these supports will hold. If they do, we could see some recovery toward year end."
Also supportive for metals prices, union workers at Freeport Indonesia's Grasberg copper mine said on Wednesday they could extend their strike by another month, which would make it the longest mining stoppage in the country's history. As a result of low production and processing rates, the firm has suggested it might not achieve fourth-quarter production and sales targets and the government had said the mine was producing copper, gold and silver ore at just 5 percent of capacity.
Also, China's production of refined copper fell to its lowest level in five months in October, its second decline in as many months, due to a shortage of raw materials copper concentrate and scrap, official data showed on Wednesday. On the LME, a senior trader at a ring dealing member said that trader interest has been light this week, as customers remained focused on fallout from failed broker dealer MF Global, and are still waiting for positions to be transferred.
Traders said volumes had been light, given trouble reconciling positions that previously had been held with now defunct floor member MF Global. "There's nothing gone through, as far as client positions, yet. Requests have been in there for over a week now, and still people are waiting. It's not been handled very well," he said. Metals clients of MF Global's British unit face delays in their positions being transferred to new brokers after a problem with London Metal Exchange (LME) data slowed the migration process, industry sources said on Tuesday.
Aluminium closed at $2,125 from $2,141 and battery material lead at $1,978 from $2,021 with little price support seen despite demand picking up ahead of northern hemisphere winter, a key season for battery replacements. Three-month nickel closed at $18,050 from $18,350 and tin at $22,000 from $22,205. Zinc, used in galvanising, was $1,934 from $1,996 at Tuesday's close.