Copper hit a two-week low on the first trading day of 2016 after weak Chinese factory data weighed heavily on Shanghai equities and rekindled worries over economic growth in China and beyond. Surveys showed factory activity in the world's second-largest economy shrank again in December, sparking a 7 percent slide in Chinese shares that triggered a trading halt.
Adding to the worries, China's central bank fixed the yuan at a 4-1/2 year low. Three-month copper on the London Metal Exchange ended down 2.1 percent at $4,606.50 a tonne, having logged losses of 25 percent for last year. It earlier hit $4,591, its lowest level since December 18. Other metals also fell. Zinc ended down 2.6 percent at $1,568, and nickel closed down 3.5 percent at $8,505. Lead dropped 2.7 percent to end at $1,745.50.
"Manufacturing activity in China remains sluggish, services are relatively better, it's like a two-speed economy," said Xiao Fu, head of commodity market strategy at Bank of China International. "Even with expected base metals production cuts, risks remain skewed to the downside, especially prior to the Chinese New Year." A trader said metals were reversing course after end-of- year book squaring had pushed then up slightly in December. In the euro zone, factory activity ended 2015 with growth in all countries covered by a survey released on Monday. In the United States by contrast, manufacturing unexpectedly fell in December to its weakest level since June 2009.
Adding pressure to metals prices, the dollar is expected to post further gains this year thanks to an expected cycle of US rate hikes. A strong dollar makes dollar-priced metals costly for non-US investors. It can also reduce mining costs, deterring producers from making output cuts. Goldman Sachs in a recent report forecast copper at $4,500 at the end of 2016. "We continue to see the risks surrounding our end-2016 forecast as skewed to the downside, with the main risks being Chinese demand and cost deflation."
Copper production in Peru, the world's third-largest supplier, surged 37 percent in November. The country is poised to become the world's second-biggest copper producer this year. Aluminium ended down 2.2 percent at $1,473, having hit a month low earlier at $1,464. This was despite news that Malaysia is pushing to suspend bauxite mining due to concerns about its impact on the environment, threatening to interrupt supply of the aluminium-making ingredient to China. Tin ended down 1 percent at $14,400, having hit a 5-1/2 week low earlier at $14,360.
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