LONDON: Copper was down as investor remained uncertain about debt situation in the euro zone and its affects on financial institutions, on Thursday, although French debt auction supports to divert some fear about country’s solvency.
Benchmark copper on the London Metal Exchange fell 0.70 percent to trade at $7,485 a tonne in official rings from a close of $7,540 a tonne on Wednesday.
Concerns over euro zone sovereign debt and the region's banks sent the euro to a 15-month low against the dollar on Thursday, although the first French bond auction of 2012 helped dispel some fears about the ability of governments to fund their massive debts.
The crisis has crippled economic growth prospects and has weakened the outlook for industrial metals demand.
This, coupled with an economic slowdown in the world's second-largest economy, China, pushed copper prices 21 percent lower in 2011. China, the largest market for industrial metals, accounts for about 40 percent of global refined copper supply.
"In base metals there is still higher risk aversion of market players, and metals are also suffering because of the stronger dollar," said Commerzbank analyst Daniel Briesemann. A stronger dollar makes commodities priced in the US currency costlier for holders of other units.
"We'll have to wait for next week to see what economic data will suggest, especially from China. In November the Chinese have acted opportunistically, and with lower prices they imported more copper. In December prices were also low, so I expect we'll see some good import figures," Briesemann said.
French borrowing costs rose slightly when the euro zone's second-largest economy sold debt for the first time this year but demand was solid despite concerns the country could lose its AAA credit rating.
The European banking sector has also been heavily affected by the euro zone sovereign debt crisis and by stringent regulation requiring banks to hold higher amounts of liquidity.
The CEO of Italy's largest bank, Unicredit, tried to reassure investors over the bank's heavily discounted 7.5 billion euro ($9.68 billion) rights issue as the share price suffered a second day of steep falls.
"The situation in Europe is still precarious at best," said RBC Capital in a research note. "Unless the Chinese surprise us with further easing of bank reserve requirements, base metals look set to under-perform through the Lunar New Year Holidays. "Aluminium traded at $2,028 a tonne in official rings, down from a last bid of $2,064 on Wednesday.
Rio Tinto Alcan's force majeure on aluminium output from two of its smelters in Canada due to separate operational and labour issues, failed to lift aluminium prices. "Those two smelters are too small to have an impact on the aluminium market," Briesemann said.
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