Copper bounced on Friday, helped by investors balancing positions ahead of the weekend's G-20 meeting, but was set to decline for a third week on concerns that deepening debt problems in the euro zone could drag on China's economy and metals demand.
Three-month copper on the London Metal Exchange traded at $7,736.75 a tonne at 12:00 SA time, up 1.15 percent from Thursday's close of $7,649 a tonne.
However the metal, used in power and construction, has dropped by 10 percent since late April, trimming the year's gains to just 2 percent.
“There is the combination of Europe and all that entails, and concerns about the extent of the slowdown in China weighing on prices,” BNP Paribas metals strategist Stephen Briggs said.
“But our view is that China is gong to muddle through. It's not going to be a bad year for metal demand especially given the copper market is in underlying deficit. Next week is a tough call, but my gut feeling is that we'll see slightly higher prices because we've gone too far on the downside,” he said.
The US dollar climbed, world shares fell and German borrowing costs hit record lows on Friday as a deepening Spanish banking crisis, uncertainty about Greece's future in the euro zone and lacklustre US data provoked a rush for safe-haven assets.
Investors were also reluctant to buy riskier assets after Moody's cut the credit ratings of 16 Spanish banks on Thursday. Fellow ratings agency Fitch downgraded Greece deeper into junk territory.
More clarity may come on demand from China, the world's top consumer of metals, late next week when initial estimates of manufacturing data for May are due.
Nearer term, leaders of major industrial economies meet this weekend to try to head off a full-blown crisis in Europe where fears are growing that Greece could leave the euro zone bloc, threatening the future of the common currency.
“The G8 meeting is likely to be in focus... given how critical the situation is in Europe at present, policy makers may well feel the need to come up with something to soothe the markets and the possibility of that might lead to some book squaring ahead of the weekend,” Fastmarkets said in a note.
“In the short term we would not be surprised to see some counter trend moves, but feel the overall down trends will dominate until cutbacks are made or until the current anxiety about Greece leaving the euro abates.”
BUILD UP NEXT WEEK
With much of Europe on a long weekend holiday after Ascension day on Thursday, a senior London trader said copper's rally was driven by activity in the Far East, with little to no euro-based business to be seen.
“We have got four weeks left before the holiday season starts in Europe. If you need some additional material, you will use these bottoms here to cover,” the trader said.
“Nobody wants to run stocks over the summer because nobody knows what's going to happen in Greece, etcetera, and so will reduce risk as much as they can. But unless the euro explodes...then I expect a recovery late summer early autumn,” he added.
There have been signs of a pick up in demand from China, which accounted for 40 percent of refined copper consumption last year. But demand still looks subdued given it's now the seasonally strongest second quarter.
Shanghai copper moved into backwardation this month, implying a pick up in near-term demand.
Copper inventories in warehouses monitored by the Shanghai Futures Exchange fell 7.3 percent or 13,635 tonnes on the week however traders have said this partly reflects an inventory shift back to LME sheds in South Korea, where stocks rose by more than 4,000 tonnes on Thursday.
Aluminium was at $2,059 from $2,054. The queue to take metal out of Detroit grew by one week to 46 weeks, LME data showed.
Tin was at $19,300 from $19,200 while zinc, used in galvanising was at $1,906 from $1,900 on Thursday's close. Battery material lead was at $1,952.25 from $1,927 and nickel was at $17,160 from $17,195. - Reuters