Copper prices tumbled to six-year lows on Monday alongside Shanghai equities on growing nervousness about economic activity and demand prospects in top industrial metals consumer China. Benchmark copper on the London Metal Exchange earlier fell nearly 4 percent to $4,855 a tonne. The metal used in power and construction ended at $4,953 a tonne from $5,055 at Friday's close. "The market fears a severe deterioration in Chinese demand. The perception that the Chinese government can control what is going on in the economy has been shattered," said Carsten Menke, commodities analyst at Julius Baer.
"You can see it in the equity market crash. The fear is there might be further pockets of weakness we don't see." Chinese stocks plunged more than 8 percent, posting their biggest one-day loss since the height of the global financial crisis in 2007 as disillusioned investors retreated after Beijing held back expected policy support at the weekend following last week's 11 percent slide.
A major reason behind the sell-off in industrial metals was a survey on Friday showing China's manufacturing sector shrank at its fastest pace in almost 6-1/2 years in August. Three-month aluminium fell 2.7 percent to $1,506, its lowest since June 2009. The metal used in transport and packaging ended at $1,521.5, down from $1,548 on Friday. "Our latest speculative positioning estimates, as of August 20, indicate that the spec short in aluminium has grown to 34 percent of open interest, the largest spec short in aluminium since July 2012," Marex Spectron said in a note.
The aluminium market is also keeping an eye on a large long position for settlement in October, which could bring a period of potential tightness and price volatility. Zinc and lead hit five-year lows of $1,694 and $1,618 respectively. Zinc fell to $1,707 from Friday's $1,767 and lead dropped to $1,659 from $1,702. Tin slid 6 percent to $14,000, its lowest since July 13. It ended at $14,050, against Friday's $14,900.
The soldering metal has been under renewed pressure on expectations of rising shipments from top exporter Indonesia after PT Timah, the country's top tin miner, was granted government clearance to resume exports. Nickel slumped nearly 10 percent to $9,215, its lowest since August 12. It closed at $9,520 from $10,200. Expectations of weak demand from Chinese stainless steel mills and high inventories have undermined nickel. "The current headwinds to nickel highlight how deep-rooted the structural and cyclical problems in China are," Bank of America Merrill Lynch said in a note.
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