Copper steadied on Monday, but prices were undermined by the unfolding disaster in Japan and tensions in the Middle East, which eroded investor sentiment and prompted a flurry of selling. The metal used widely in power and construction gleaned support, however, from expectations for stronger demand in the long term for rebuilding roads, railways and other infrastructure.
-- Indonesia tin exports fall 12pc in February Benchmark copper on the London Metal Exchange closed at $9,195 from $9,190 a tonne at the close on Friday, when the industrial metal hit a three-month low of $8,992 a tonne.
Stock markets in Japan have tumbled and companies face disruption to operations after Friday's earthquake and tsunami destroyed infrastructure and damaged production capacity. Wall Street was also negatively affected. "The market is very confused at the moment. There is a big question mark over global growth and end-users' demand for industrial metals," said Numis Securities base metals analyst Andy Davidson, talking of the impact of earthquake in Japan and of the political crisis in North Africa and the Middle East.
"But some people are also looking through and think, 'Actually, rebuilding is going to boost demand for metals'. It's all very sentiment-driven at the moment." Conflict in the Middle East has pushed crude oil to two-and-a-half year highs recently, which has raised concerns about global economic growth and demand for industrial metals.
Japan's already weak economy faces deeper damage than initially thought from the triple blow of the earthquake, tsunami and nuclear disaster, which risks prolonging its sluggish recovery. At worst, forecasts from some economists suggest the world's third-largest economy is in danger of slipping back into recession. "The disruption to industrial sector activity is likely to have a negative impact on the industrial metals and bulk commodity sectors," Deutsche Bank said in a note.
"However, we expect attention will turn to reconstruction. We would expect copper and zinc would be the principal beneficiaries of a large-scale reconstruction programme." Also negative was data from China, the world's largest consumer of industrial metals, which showed money growth and bank lending slowed sharply in February because of tighter monetary policy to rein in inflation.
"This data hasn't helped, people are looking at it and thinking perhaps the brakes have gone on too hard," a metals trader said. "But Japan is the main focus with market digesting news from there and looking for direction." Japan produced about 1.52 million tonnes of copper last year, about 7 percent of global output. The smelters that produce this copper have shut operations because of power outages.
"This will only become a problem if the disruption lasts for a long time," the trader said. In the meantime, premiums for physical copper in Europe held at two-year lows of $40 a tonne this week, about half the value of levels recorded in January, as traders said high prices deterred interest from top metals consumer China.
Three-month aluminium closed at $2,555 a tonne from $2,545 on Friday, zinc ended at $2,330 from $2,276, lead at $2,520 from $2,425 and nickel at $25,850 from $26,095. Tin closed at $29,900 up from $29,500. Supporting tin prices were lower exports from Indonesia. Indonesia's refined tin exports fell nearly 12 percent in February from a year ago as rains hampered mining, trade ministry data showed.