Copper down on Greek default worries

Benchmark copper on the London Metal Exchange fell about 2 percent to $7,760.25 a tonne by 0930 GMT from $7,885 at the close on Wednesday, when it rose about 2 percent.

Earlier, it hit a session low of $7,673 per tonne.

The metal used in power and construction rose by about 15 percent in the last 30 days but is still about a quarter down from a record high of $10,190 a tonne hit on February.

"Today the escalating debt crisis in the Euro zone is weighing on all commodities; the EU has frozen payments to Greece and if Greek people say no at the referendum Greece is bankrupt," Commerzbank analyst Daniel Briesemann said.

"The fundamentals should support copper and other metals: inventories have been falling across the board lately, Chinese imports are healthy and cancelled warrants have been rising but commodity markets at the moment are almost ignoring fundamentals. They are politically-driven."

The leaders of Germany and France told Greece on Wednesday it would not receive another cent in European aid until it decides whether it wants to stay in the euro zone.

Greece could face bankruptcy if the population ends up voting against the European Union's latest financial aid package in a referendum, the chairman of the Eurogroup countries said on Tuesday.

European leaders were preparing for the possibility of Greece leaving the euro zone to preserve the 12-year-old single currency.

A stronger dollar against a basket of currencies was also weighing on metals.

A stronger dollar makes dollar-priced commodities such as metals costlier for holders of other units.

STILL ROBUST

From a fundamental point of view things looked brighter.

Declining copper ore grades and strike actions at some of the largest copper mine have cut supply significantly this year.

Freeport McMoRan Copper & Gold's massive Grasberg mine in Indonesia is producing copper at 5 percent of its full capacity, a senior official at the energy and mineral resources ministry said.

Also a decline in metals stocks and a rise in cancelled warrants in the last few weeks underlined demand for industrial metals was still robust.

Copper inventories in LME-monitored warehouses fell by 1,150 tonnes to 422,125 tonnes, the lowest since February, latest data showed. Inventories have fallen by about 10 percent in the last 5 weeks.

"If we look at industrial metals' specific fundamentals, we find that they are mostly positive for prices," Credit Suisse said in research note.

"For instance, inventories of aluminum, copper, nickel, tin and even zinc have continued to fall. Availability is deteriorating... This positive fundamental backdrop contrasts the prevailing uncertainty regarding the economic outlook and the policy measures surrounding the European debt crisis."

In other metals, aluminium was at $2,138 from $2,127 at the close on Wednesday and zinc, used to galvanize steel, was at $1,918.75 from $1,927 a tonne.

Copyright Reuters, 2011