Copper fell on Friday on mounting worries about growth and demand over coming weeks in top consumer China, holding prices close to near-seven year lows hit this week. Benchmark copper on the London Metal Exchange ended down 0.9 percent at $4,485 a tonne in official rings. The metal used in power and construction hit $4,430 on Thursday, its lowest since May 2009.
Worries about economic growth in China have led to a turbulent start on equity and currency markets this year. "There's a lot of uncertainty about China. There's also the weak data we saw this week and a perception that China's economy is going to continue struggling," said ICBC Standard Bank analyst Leon Westgate. Westgate added that rebalancing of fund portfolios based on commodity indices such as the S&P GSCI over the next few days could add to volatility.
"It's difficult to predict because you have to look at the rebalancing with regard to inflows and outflows out of index products and relative price changes." Index rebalancing typically involves buying commodities that fell in the previous year and selling those that rose. In the event that most fell, as was the case last year, the buying and selling will be based on relative moves.
"Rebalancing in metals may mean some buying of nickel and copper," a trader said. "Funds were buying copper earlier and some consumers have been looking to hedge since yesterday." Copper dropped 25 percent in 2015 and nickel crashed more than 40 percent, as China's stainless steel mills cut output and stocks. A Reuters report saying that China's state stockpiling agency bought 150,000 tonnes of refined copper cathode through a closed-door tender on Friday afternoon briefly helped prices.
But traders said China's State Reserves Bureau would have to buy a lot more to reverse the downtrend. Three-month nickel ended up 0.6 percent to $8,550 a tonne, zinc rose 0.1 percent to $1,508 and lead lost 2.4 percent to $1,620 a tonne. Tin gained 0.2 percent to $13,750. Analysts see little hope of clarity on demand prospects for industrial metals in China until after the Lunar New Year holiday in February. Aluminium climbed 1.1 percent to $1,492.5 a tonne. The metal used in transport and packaging touched a one-month low of $1,451.50 on Thursday, under pressure from oversupply. "Looking at some of the bids sitting on the LME select dealing system yesterday in aluminium it felt like it was a deliberate attempt by someone to halt the slide," Kingdom Futures said in a note.
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