Copper slipped on Wednesday in thin trade as worries about the eurozone debt crisis resurfaced ahead of a debt auction in Italy and as concerns over an economic slowdown in top metals consumer China clouded demand growth prospects. A report showing US house prices declined in October weighed on market sentiment, although improving US labour market conditions lifted consumers' confidence to an eight-month high in December.
"The housing sector remains the weakest link, but the US economy has proved this quarter it is recovering better than expected," said Gianclaudio Torlizzi of metals consultancy T-Commodity. "What is making the market nervous is new worries about the eurozone crisis ahead of the debt auction in Italy and worries that the Chinese government will not be able to manage this physiological economic slowdown."
Benchmark copper on the London Metal Exchange lost 2.42 percent to close at $7,465 a tonne from a close at $7,650 a tonne on Friday. Earlier, it hit a session low of $7,437 a tonne, its lowest in almost a week. US copper futures' most-actively traded contract, March, settled down 1.3 percent, or 4.35 cents, at $3.3655 a lb. The metal used in power and construction has lost more than 20 percent of its value this year, the first yearly fall since 2008, when the credit crunch hit most riskier assets.
The London Metal Exchange was closed on Monday and Tuesday. Weighing on metals, the dollar rose against a basket of currencies in thin trade. A stronger US unit makes dollar-priced commodities such as base metals costlier for holders of other currencies. News that the union at a Freeport McMoran Copper & Gold Inc mine in Indonesia had halted a return to work after a three-month strike failed to lift prices as investors continued to focus on economic data.
As a sign of uncertainty over the extent of the slowdown in the Chinese economy, shares in Shanghai fell to a 33-month low. China consumes about 40 percent of the global copper supply and a slowdown of industrial activity in the Asian country would have a significant impact on base metals prices.
"Consumption of most of the base metals held up well in the first nine months of the year. However ... most information relating to orders, shipments and physical premiums are now pointing down," said Societe Generale in a research note. "Companies operating in downstream markets may need a number of months of positive economic data before being convinced of the merits of raising production."
Fresh eurozone debt worries also hit financial markets. Although Italian short-term debt costs halved at auction on Wednesday, analysts warned that market tensions could easily reignite and pointed to a new test on Thursday, when Italy will sell up to 8.5 billion euros of longer-term bonds.
The European Central Bank (ECB) allotted 489 billion euros to eurozone banks last Wednesday in a liquidity injection that was the ECB's latest effort to bolster bank finances. It hoped the move would minimise the chances of banks' responding to the debt turmoil by slamming the brakes on lending. Investors worried, however, that the liquidity would not feed through the system as banks deposited a record level of cash at the ECB.
These worries were overdone, according to some analysts. "With all this liquidity around, I see prices moving upwards in the short term, and I think today's copper price is a good opportunity to buy," Torlizzi said. Also weighing on risk appetite, Iran's threat to stop the flow of oil from the Gulf supported crude prices but weighed on equity shares world-wide. Aluminium closed at $1,999 from $2,016.
Tin finished at $18,600 from a last bid of $19,295 while zinc, used to galvanise steel, ended at $1,810.50 from $1,855 Friday's close. Battery material lead closed at $1,960 from $2,020 and nickel, untraded at the close, was last bid at $17,900 from $18,505 at the close on Friday.