Copper slipped on Thursday, hit by expectations of a contraction in the euro zone economy and its implications for demand for industrial metals, but losses were limited by upbeat German business sentiment numbers. European Commission interim data showed euro area GDP was expected to shrink 0.3 percent this year compared with a previous forecast for 0.5 percent growth, with the region likely to head into its second recession in just three years.
Three-month copper on the London Metal Exchange ended at $8,390 a tonne, down from Wednesday's close of $8,435. "The outlook for the euro zone economy is weighing on sentiment," said Peter Fertig, a consultant at Quantitative Commodity Research. "If the euro zone is in a recession and is importing less, this has implications on Chinese exports and Chinese growth, which will impact base metals."
China is the top consumer for copper, accounting for as much as 40 percent of demand. Helping ease some worries about the outlook for the economy, German business sentiment rose to its strongest in seven months in February, offering fresh evidence that Europe's largest economy will dodge a recession. Analysts said the market was cautiously optimistic given a low interest rate environment that should stimulate growth.
"In the medium term the outlook is positive as the recent intervention of the Chinese central bank has given an important signal of a gradual shift to a looser monetary policy, which will support copper," said Gianclaudio Torlizzi, a partner at metals consultancy T-Commodity. Even though the German sentiment data pointed to the euro zone's powerhouse avoiding recession, a continued contraction in China's manufacturing sector would make it hard for economy-sensitive copper to sustain an 11 percent gain year to date.
Highlighting supply uncertainty, Freeport-McMoRan Copper & Gold Inc's Indonesia unit is experiencing "work interruptions", the company said on Thursday, hours after a union said thousands of workers at the Grasberg mine have stopped working. Workers at the mine in central Papua stopped working on Thursday following an unresolved dispute with management, according to a union official.
Compared with copper, there may be more upside potential for aluminium which has gained more than $100 in less than a week. It was untraded at the close but bid at $2,273, from a close of $2,280, not far from its 200-day moving average at $2,311.66. Aluminium stockpiles at LME warehouses staying at record highs above 5 million tonnes as well as excess smelting capacity had pressured prices late in 2011 even as bulk of the LME stocks are believed to be tied to financing deals. Zinc, used in galvanising, ended at $2,048 a tonne from a close of $2,067, while tin closed at $24,195 from $24,050. Battery material lead ended at $2,165 from $2,148.50 and stainless steel ingredient nickel closed at $20,000 from $20,100.