SINGAPORE: Shanghai zinc fell more than six percent on Tuesday, its biggest daily drop in three years, leading a broad sell-off in riskier assets as Libya's social unrest prompted a flight from equities and industrial metals.
China's benchmark stock market index fell more than two percent.
"There is long liquidation in Shanghai zinc on the back of falls in equities," said a Shanghai-based trader. "Speculators have been buying zinc since last week, and today is probably a good opportunity to take some off."
Shanghai's most-active zinc futures contract fell as much as 6.2 percent to 19,150 yuan a tonne, after scoring a three-month high of 20,560 yuan earlier in the day. It last posted such a daily loss in February 2008. It closed mid-day down 3.7 percent at 19,665 yuan.
Three-month zinc on the London Metal Exchange dropped nearly three percent at $2,520 by 0331 GMT.
Copper prices held relatively well, with LME copper down just 0.1 percent at $9,800 a tonne
"Copper is feeling some impact from the Middle East unrest," said a second Shanghai-based trader, "but since it doesn't threaten to change the fundamentals, the impact is unlikely to be profound."
Shanghai's most-active copper futures contract fell nearly one percent at 73,890 yuan.
Traders said LME copper is likely to move in a range of $200 to $300, in the absence of any major triggers.
Shanghai copper is expected to fall back to Monday's low at 73,690 yuan per tonne, as a rebound from this level could have completed, said Reuters market analyst Wang Tao.
Business morale rose to a record high in Germany in February, its ninth consecutive increase, signalling a strong rebound in Europe's dominant economy still carries momentum despite spending cuts and slower growth abroad, helping support sentiment.
The world copper market had a deficit of 400,000 tonnes in the January to November period of 2010 compared with a surplus of 98,000 tonnes in the same period the previous year, said the International Copper Study Group.
Still, rising copper stocks put some weight on the market. LME copper stocks rose 3,550 tonnes to 411,475 tonnes, their highest since August last year. The stockpile has been on a steady climb since early Dec, up 18 percent from Dec 9.
Activity in the physical copper market of China, the world's top consumer, remained thin with buyers staying on the sidelines due to high prices, traders and analysts said.
"Consumers aren't building stockpiles any more," said Li Ye, an analyst at Star Futures, "They are a bit wary of high prices.
In addition, cash flow is still quite tight."
China is trying to curb stubbornly high inflation. Last Friday, Beijing raised banks' required reserves ratio to a record 19.5 percent, the fifth increase since October.
LME aluminium fell 0.7 percent at $2,563, after hitting a 29-month high of $2,585 hit in the previous session.
Shanghai aluminium fell 0.9 percent at 17,190 yuan, after rising to a one-year high of 17,435 yuan earlier in the day.
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