Copper fell on Tuesday, hit by uncertainty about the outlook for economic growth, with investors reluctant to take on long positions as they awaited a meeting of central bankers later this week for clues on possible further stimulus measures.
Three-month copper on the London Metal Exchange slipped to $7,614.50 a tonne at 11:23 SA time, down 0.3 percent from Friday's close of $7,640 a tonne.
The cautious mood was fuelled by festering fears over a slowdown in the global economy after recent weak data, including a sharp profit drop for China's industrial sector in July.
Helping keep falls in check, however, was a stronger euro against the dollar. A weak dollar makes commodities priced in the US unit cheaper for holders of other currencies.
Investors were awaiting a gathering of central bankers and economists in Jackson Hole, Wyoming on Friday for clarity on what the Federal Reserve might do to stimulate the US economy.
“Investors are likely to stay on the sidelines ahead of the meeting in Jackson Hole,” said VTB analyst Andrey Kryuchenkov. “Bernanke will probably reiterate that the Fed will keep interest rates low until 2014 and remain accommodative but I don't think we can expect more quantitative easing so markets could be disappointed.”
Most major risk asset markets have enjoyed broad-based gains over the past month, spurred on by hopes for a third round of monetary easing by the Fed and expectations the European Central Bank will soon take action to cut high borrowing costs hurting Spain and Italy.
“The focus is now on Jackson Hole, but with US data of late not looking too bad the Fed may well want to keep its powder dry,” FastMarkets said in a note.
“If no QE is announced then there is room for disappointment. As such, we would expect trading this week to be nervous and choppy.”
Trading volumes were light due to summer holidays in the northern hemisphere, when many plants shut for annual maintenance.
The metal used in power and construction is on track to eke out a small gain of 0.6 percent for the month of August.
CHINA DEMAND
Traders reported a lift in Chinese spot copper demand as speculators snapped up copper on news that smelters were buying domestic copper to cover their supply contracts and planning to export more copper to take advantage of a new tax incentive.
“Smelters and speculators have been buying up spot copper in China, slightly tightening supply here, which has in turn resulted in more bonded warehouse drawdowns,” said a Shanghai-based physical trader.
“Despite the flurry of trading lately, downstream copper demand is still weak. LME copper physical premiums in Shanghai have stayed at around $70-80 per tonne for the past few months, with some willing to go as low as $50-60.”
LME zinc snapped four sessions of gains to drop to $1,865 from Friday's close of $1,879 a tonne.
“We heard that hedge funds which bought LME zinc on Friday liquidated their positions today,” a trader said. A Singapore-based trader agreed that LME zinc had dropped due to a large speculative move, saying that its fundamentals were unchanged.
“In fact, zinc ingots supply is tight in Asia with a lot of metal in the region locked up in financing deals,” he said.
In other metals, benchmark tin slipped to $20,820 from Friday's close of $20,900 a tonne, while nickel fell to $16,334 from a close of $16,475.
Lead dropped to $1,960 from $1,971 and aluminium fell to $1,907 from a close of $1,919 on Friday. - Reuters