Copper fell on Monday as the dollar rose and enthusiasm for Europe's debt deal gave way to the view the region's economic problems are far from over, though the metal remained on track for its biggest monthly rise since last December. Three-month copper on the London Metal Exchange closed at $8,000 a tonne from $8,175 at the close on Friday, but was still on track to end October up about 13 percent in the biggest monthly rise since December 2010.
It is being supported by strong fundamentals, including continued supply disruptions at the world's second-largest copper mine, Grasberg in Indonesia, and steady spot demand in China, the world's top consumer of the metal. But weighing on sentiment for now are renewed worries that economic problems in Europe will crimp metals demand, with markets awaiting further details on a deal secured last week to tackle the regions debt problems.
"There is some realism coming back to the market, the problems in Europe are far from being solved. The market was impressed by the deal but details are not yet clear. If it's seen as play on time then it might again come to disappointment," said Commerzbank analyst Eugen Weinberg.
Stoking fears over the deal's validity, Japan told the head of Europe's bailout fund earlier that it would continue to buy its bonds, but, like fellow potential investor China, did not commit to putting cash into a mooted special purpose vehicle to enhance the rescue fund's firepower. Investors are said to be wary that a summit this week of leaders from the world's 20 leading economies may disappoint with a lack of further details on plans for the rescue fund, the European Financial Stability Facility.
For clues on the economic outlook, markets are awaiting US and China manufacturing PMI data scheduled for Tuesday. On Monday, the Institute for Supply Management-Chicago said its index of Midwest business activity fell in October to 58.4 from 60.4 in September. Economists polled by Reuters had forecast an October figure of 59.0.
The euro slid versus the dollar on Monday, taking its cue from the Japanese yen, which hit a three-month low versus the greenback after Japan intervened to weaken its currency. A weak euro makes dollar-priced metals costly for European investors. On the plus side for copper was data showing stocks of the metal held in LME warehouses fell by a further 3,000 tonnes to total 429,375 tonnes, making for a fall of nearly 10 percent over the past month. Also pointing to possible supply tightness in the near term, cash copper traded at a premium against the three-month benchmark contract for the first time since March this year.
With many of the copper stock withdrawals coming from Asian warehouses and probably heading for China, copper's price prospects are strongly dependent on how things pan out in China on the economic front. "We still advocate selling copper into rallies. We believe that rallies will become sustainable only once Chinese monetary policy eases - which we don't expect in Q4:11," said Standard Bank in a note. In other metals, tin closed at $22,000 a tonne from $22,050 while zinc was $2,000 from $1,980 at Friday's close.
Tin smelters in top exporter Indonesia are likely to continue a stoppage of ingot supplies into November, as they try to push benchmark prices above $25,000 a tonne, an industry official said. Lead closed at $2,082 from $2,090, aluminium at $2,220 from $2,242, and nickel at $19,575 from $19,700.