Copper fell to a 4-1/2-month low on Wednesday as the euro dropped ahead of a European Union summit that investors feared may not come up with sufficient measures to tackle the euro zone debt crisis and shore up the faltering economy.
Three-month copper on the London Metal Exchange fell to $7,598 a tonne at 11:26 SA time, down 1.8 percent from a close of $7,739 on Tuesday.
The metal, used in power and construction industries, earlier dropped to its lowest level since early January at $7,590 a tonne, and is trading more than 9 percent lower so far this month.
Investors are wary that a failure to tackle the euro zone's debt crisis would hit global demand for industrial metals just as China's growth is slowing and a US recovery is fragile.
They shunned assets perceived as risky on concerns about the crisis, with the euro falling to a 21-month low against a broadly stronger dollar. A strong dollar makes commodities priced in the US unit more expensive for holders of other currencies.
An informal European leaders summit later on Wednesday is expected to discuss growth-boosting measures and the idea of a
joint euro-zone bond.
But while new French President Francois Hollande supports the proposal for a joint euro-zone bond, Germany's long-standing opposition is unlikely to change, raising the risk of political deadlock in the euro zone.
“There is risk aversion in the market and all eyes are on the summit where the rift between France and Germany seems to be widening,” Andrey Kryuchenkov, an analyst at VTB said.
“People are piling into the US dollar and that is putting pressure on base metals. Copper is looking to the downside.”
Investors are also concerned about sluggish demand from top consumer China, where buying has been slow to pick up so far this year. Analysts noted that many Chinese investors were sticking to safe plays because of uncertainties in copper's demand outlook and global economics.
China's consumption accounts for 40 percent of global copper demand.
“There are more reasons to stay wary than to cheer. All signs point to Chinese copper demand being sluggish, with downstream orders still weak. China's economy is slowing, the euro zone crisis remains an issue, while a US recovery is still uncertain,” said CIFCO analyst Zhou Jie.
Even as the world looks to China for support there is little sign that Beijing - faced with its own problems of inflation and high levels of local government debt - is ready to combat slowing growth with aggressive policies.
The World Bank cut its economic growth forecast for China this year to 8.2 percent on Wednesday and urged the country to rely on easier fiscal policy that boosts consumption rather than state investment to lift activity.
COPPER STOCKS RISE
The latest data showed copper stocks in LME-registered warehouses rose by 1,725 tonnes to 225,700, with net inflows mostly into warehouses in South Korea, where traders suspect Chinese merchants have booked around 110,000 tonnes for delivery.
Metals warehouses in China are said to be so full that workers are starting to stockpile iron ore in granaries and copper in car parks.
“We know that Chinese bonded warehouse stocks are near record highs and when domestic stockpiles start shrinking only then you will see shrinkage in LME stockpiles in Asian locations,” Kryuchenkov said.
Hit by the broad slide in base metals prices, nickel touched a 2012 low at $16,750 a tonne, its lowest level since early December 2011. It later recovered slightly to trade at $16,800 from Tuesday's close of $16,900.
Aluminium slipped to $2,017.25 from a close of $2,029 on Tuesday Norsk Hydro will shut its 180,000-tonnes-per-year aluminium smelter in Australia due to low metals prices and a dismal economic outlook, the latest producer to take steps to stem losses.
Lead fell to $1,930 from $1,965, zinc slipped to $1,875 from $1,911, while tin fell to $19,392 from Tuesday's close of $19,705. - Reuters