China pollution clampdown fuels copper demand concerns

LONDON: Copper prices eased on Friday as Chinese anti-pollution measures fuelled worries about reduced demand, while a further rise in bond yields spurred renewed risk-off sentiment.

Three-month copper on the London Metal Exchange was down 0.3% at $9,033 a tonne by 1130 GMT.

The contract has surged 46% since the beginning of 2020, hitting a 9-1/2-year high of $9,617 a tonne in February.

"The market is troubled by the fact that we had this renewed jump in bond yields, the impact it's having on risk appetite and the funds holding on to elevated positions across the board," Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen, said of the moves.

The yield on benchmark US treasuries rose above 1.60% for the first time in four sessions, with European stocks and US futures both losing ground.

"So there's a potential deleveraging risk and there's also the clampdown on steel production in some China provinces this week, that has not done the market any favours," Hansen said.

China's government urged top steelmaking city Tangshan to severely crack down on violations of atmospheric environment rules after it found four steel mills failed to implement production curbs during heavy pollution.

Beijing has in the past closed other metals operations such as aluminium smelters to cut emissions.

Concern about rising copper mine production also helped to dampen prices. Fitch Solutions said in a note: "We see large, new supply coming online in 2021 and expect minimal disruption from COVID-19 in 2021."

The Yangshan copper premium fell to $68 a tonne, its lowest since Jan. 15, indicating weaker demand from top consumer China, while inventories have been rising in both LME and ShFE warehouses.

LME three month aluminium fell 0.7% to $2,162 a tonne after LME inventories surged by 50% over the past two days to 1.92 million tonnes, the highest since March 2017.

LME zinc declined 0.3% to $2,816 a tonne, lead advanced 0.8% to $1,957.50, nickel fell 0.8% to $16.105 and tin added 0.4% to $26,015.