Losses piled up across the base metals complex, with aluminum futures shedding more than 2 percent and tin and nickel each erasing about 4 percent of their value, as investors reduced their exposure in the economically sensitive industrials and turned to safer havens like gold and the dollar.
Predicated on doubts over how much of US President Barack Obama's $447 billion jobs proposal would make it through Congress, the fear-based losses picked up as the euro sank to its lowest level in six and a half months against the dollar after sources said ECB Executive Board Member Juergen Stark will step down from his post because of a conflict over the central bank's controversial bond-buying program.
"Today's move is a vote of no confidence in the President's speech last night ... it's just triggering a risk-off mentality," said Steve Shafer, who helps manage $300 million as chief investment officer of Oklahoma City-based Covenant Investors.
"It doesn't shake our confidence. We look at today as what we have anticipated to be a move lower in the near term as investors ratchet down their expectations for GDP in the developed world."
London Metal Exchange (LME) three-month copper tumbled $294 or 3.2 percent to end at $8,821 a tonne, its biggest one-day loss since Aug. 5. For the week, copper surrendered 2.8 percent -- its largest weekly loss since the first week of August.
In New York, the key December COMEX contract dived 14.10 cents or 3.4 percent to settle at $4.0025 per lb, near the bottom half of its $3.9940 to $4.1420 session band.
"The broader market sentiment is going to weigh on metals until the next Fed meeting, when the US will announce something about its monetary policy," said Andrey Kryuchenkov, analyst at VTB Capital. The next Federal Reserve interest rate policy meeting is scheduled for Sept. 20-21.
Economic gloom is the backdrop to a meeting of G7 finance chiefs on Friday who are under heavy pressure to take action to revive flagging economic growth in rich nations and calm the biggest confidence crisis since the credit crunch.
INVENTORIES FALL OFFERS HOPE
Even data showing that inflation in China, a big metals buyer, pulled back in August from a three-year high in July, failed to lift sentiment. The data lends support to a pause in Beijing's policy tightening campaign.
"It doesn't change the dynamic that will drive copper consumption over the next 2 to 7 years in China, which is all about urbanizing that population and electrifying the country in advance of that urbanization so that they can still achieve annualized growth of 7 percent GDP as an average," Covenant's Shafer said.
Data on Friday showed withdrawals from LME-monitored warehouses across most major contracts, apart from tin and zinc, helped by the arbitrage -- lower three-month LME metal prices than the most active Shanghai contract prices.
The fall in copper stocks was small, but there were some healthy orders from South Korea. Lead stocks fell by 925 tonnes, with lots of deliveries out in what appears to be a pick-up in demand.
"I would look at the situation in China as one where, whether because it's concerns about economic growth or more likely because of monetary tightening, inventories have to come down quite substantially, and they are currently at low levels," Natixis analyst Nic Brown said.
"I think Chinese consumers are aware they will have to rebuild those inventories in the not too distant future."
Tight supplies will also continue to underpin copper prices.
Workers at Peru's No. 3 copper producer Cerro Verde were back on the job on Friday after a two-day pay strike but could launch an indefinite walkout next week, while a strike at Freeport McMoRan Copper & Gold's massive Grasberg mine in Indonesia is scheduled from Sept. 15 to Oct. 15.
Copyright Reuters, 2011