Copper fell to a one-month low on Monday after rating agency Standard & Poor's revised its outlook on the United States, the world's largest economy, to negative and under the pressure of a stronger US dollar. Three-month copper on the London Metal Exchange fell to $9,207 a tonne, its lowest since March 17. It then closed at $9,225 a tonne from Friday's close at $9,450.
In downgrading the outlook for the United States to negative, S&P said it believes there is a risk US policymakers may not reach agreement on how to address the country's long-term fiscal pressures. "This provided a bit of a negative backdrop because obviously the US is still a significant consumer (of copper) and it is a driver of financial sentiment," said Credit Agricole analyst Robin Bhar.
The US is the second-largest copper consumer, with North America accounting for some 13 percent of global refined consumption. But China eclipses that by far, accounting for 38 percent. Copper was already lower on Monday after China raised banks' reserve requirements on Sunday for the fourth time this year, extending its fight against excessive liquidity and stubbornly high inflation. "We expect limited upside for base metals in the short term, as high oil prices, the earthquake in Japan and tighter monetary policy in China and Western Europe take some heat out of the market," Citi analysts said in a note.
"The recent record highs could be revisited in H2 provided monetary policy tightening in China is not excessive." Also weighing on metals, the dollar strengthened against a basket of major currencies, softening metals demand from non-US investors. Stocks of copper in LME warehouses last rose 1,350 tonnes to 451,775 tonnes, their highest since June 2010. The majority of these inflows went into warehouses in Asia, supporting investors' concerns that Chinese demand is lacklustre. Also, the potential that stockpiles of copper held in bonded warehouses in Shanghai could be unlocked and released to market was also creating concerns.
"We believe there is around 550,000 tonnes of copper sitting in bonded warehouses as at mid April 2011, virtually unchanged from mid March this year, but significantly higher than the level at end 2010 of estimated 400,000 and averaging 200,000-300,000 in the past," said Macquarie bank in a note.
"Most of the material... is available for sale, so once the arbitrage starts to move in favour of import, the bonded stock could easily become customs cleared and sold onto the domestic physical market," it added. The differential between LME and Shanghai copper prices has narrowed over the last week from $335 to around $132 for the most liquid June 2011 contract, according to Standard Bank figures.
Aluminium closed $2,674 from $2,690 a tonne. Zinc ended at $2,325 from $2,398 a tonne. Stocks of the metal rose 50 tonnes to a seven-year high of 764,300 tonnes. Battery material lead tumbled almost five percent to its lowest in over a month at $2,520 a tonne. It then closed at $2,528 from $2,651 a tonne, while tin finished at $32,350 from $33,100 a tonne and nickel ended at $25,500 a tonne from $26,155.