Copper fell on Tuesday as the dollar strengthened and equities markets retreated and after BHP Billiton, the world's biggest miner, raised concerns about the possibility of a sharp slowdown in iron ore demand from top metals consumer China.
Three-month copper on the London Metal Exchange closed at $8,430 per tonne, down almost 2 percent from a close of $8,570 on Monday. The metal, used extensively in construction, hit its highest in two weeks at $8,690 on Friday and is up around 10 percent this year but has struggled to rise further.
"There is a variety of things affecting prices today including ongoing concerns about Chinese demand and worries about higher oil prices, which are not good for growth prospects," said Natixis head of research Nic Brown. "As the Chinese economy matures you would expect it to move from a heavy industrial model towards a services model, and this would reduce raw materials demand, but for me this is still a long way off. Although the East of China has pushed itself up the value chain, the West of China is still trying to develop like other countries such as India and Indonesia."
Highlighting concerns over weaker metals consumption, Australian iron ore miners, key beneficiaries of China's modern-day industrial revolution, signalled on Tuesday demand growth was finally slowing in response to Beijing's moves to cool its economy. BHP Billiton said it was seeing signs of flattening iron ore demand from China, though for now it was pushing ahead with ambitious plans to expand production.
China accounts for 40 percent of global refined copper demand. Copper is used mostly in building construction and power. Official Chinese data last week showed home prices fell in February for a fifth consecutive month, and the government reaffirmed its commitment to measures to control the property market to cool speculation.
Demand in the world's biggest copper consumer has not picked up after the Lunar New Year holiday in late January, prompting importers to delay some term shipments, traders have said. Also weighing on base metals, the dollar rose against a basket of currencies, supported by safe-haven demand as risk sentiment soured, partly because of concerns that a slowdown in China could hit global growth.
In other metals, nickel, used in stainless steel, closed at $19,050, unchanged from Monday's close. It is the worst performing base metal in the complex so far this year and is up around 1 percent, compared with copper's 10 percent rise. "Exchange inventories have risen over 8 percent and Chinese premiums remain weak," RBC Base Metals said about nickel in a research note. "That said, a move below $18,000 will begin to see a supply-side response."
Zinc, used to galvanise steel, finished at $2,036 from $2,079. Tin ended at $23,420 from $23,595, lead at $2,013 from $2,108. Aluminium closed at $2,245 from $2,275. LME aluminium stocks are near record highs at more than 5 million tonnes, but most of the metal is locked up in financing deals and not available for sale. The large stockpile, and the economic slowdown in Europe, has hurt aluminium prices, spurring global producers such as Rio Tinto, Alcoa and Norsk Hydro, to cut production.