Copper spirals lower as bond rout spooks investors

LONDON: Copper recoiled on Friday after touching successive multi-year peaks, falling more than 3% as risk-off sentiment hit wider financial markets after a spike in bond yields.

Three-month copper on the London Metal Exchange (LME) had slumped 2.3% to $9,201 a tonne by 1515 GMT, having hit multi-year peaks in six consecutive sessions. The contract had fallen as much as 3.7% earlier on Friday

On Thursday, LME copper hit its highest since August 2011 at $9,617 a tonne, 5.6% short if its record high of $10,190 in February 2011.

Other metals, such as aluminium and nickel, were also hit as Asian shares suffered their heaviest fall in nine months amid a rout in global bond markets that sent yields flying.

"The short-term outlook is probably one of caution, with risk-off deleveraging hovering over the market," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

"What we are seeing is probably an overdue and healthy stage of consolidation at best or a correction at worst."

A lot would depend on the reaction of big Chinese players that have taken large positions, such as Shanghai Dalu Futures, which has amassed a $1 billion long position in copper contracts, Hansen added.

"The question is what kind of pain threshold those big whales in the Chinese market have," he said. "We could run into a cascading wave of long liquidation, but I think the fundamental reason for owning commodities will probably prevent a major correction."

The most-traded April copper contract on the Shanghai Futures Exchange closed 2.1% down at 67,950 yuan ($10,507.68) a tonne but marked its best month since November 2016.

LME aluminium fell 1.8% to $2,195.50 a tonne as selling by producers also weighed on prices, broker Marex Spectron said in a note.

Chile's Codelco, the world's top copper producer, said it had upped output from its own mines by 2% to 1.618 million tonnes despite the coronavirus outbreak.

LME zinc declined 1.5% to $2,846, nickel dropped 1.2% to $18,970, lead was down 1.6% at $2,123 and tin retreated 3% to $26,035.