Copper fell on Friday, on track for a fourth straight week of losses, on concerns about demand as the euro zone debt crisis deepened, the dollar firmed and investors started feeling the effects of tightening credit in the metals market.
Copper has lost nearly 10 percent so far this month, mostly taking its cue from dismal sentiment in wider financial markets. On Friday, European shares fell, the euro hit a seven-week low, and bond market borrowing cost grew.
“What is going on pretty much in every part of the world is not good,” Natixis analyst Nic Brown said.
“In Europe, the ongoing political crisis is feeding through into a significant tightening of credit, and that negative effect is a clear economic shock. The United States is going through another bout of political shenanigans.”
In China, a big consumer of industrial metals, the economy appears to be slowing. Preliminary numbers on Wednesday showed its factor sector shrinking the most in 32 months in November.
Three-month copper on the London Metal Exchange fell 0.7 percent to $7,216 a tonne by 13:50 SA time, from $7,265 at the close on Thursday. LME copper has lost around 4 percent this week, after falling to a one-month low of $7,100.25 on Thursday.
But demand for copper still remains solid, analysts said, supported by supply constraints, an expected deficit of the metal next year, and destocking of the metal out of warehouses.
The International Copper Study Group (ICSG) said this week world refined copper market was in deficit of 161,000 tonnes in the first eight months of the year, compared with a deficit of 339,000 tonnes in the same period last year.
INVENTORIES
Latest data shows inventories of the metal held in LME-monitored warehouses fell to 394,725 tonnes, the lowest since early February. Aluminium stocks also fell, by 2,625 tonnes to 4.56 million tonnes.
Macquarie said a research note that China's apparent consumption of all major bulk commodities and base metals increased on a year-on-year basis in October.
In copper and aluminium, apparent consumption of semi-finished products continued to increase at a faster rate than apparent consumption of refined metal.
“The data continue to suggest de-stocking of copper and aluminium along the supply chain as a whole,” it said.
“This is consistent with feedback from our market sources and, of course, pressure and incentives to reduce inventory and release working capital in a credit-constrained and falling price environment.”
Three-month aluminium was down 0.45 percent at $2,010 from a last bid $2,018.15, off an intraday low of $1,995, and hovering close to its lowest since July last year of $1,982.25.
“Aluminium is demonstrating the worst fundamentals at the minute,” Brown said. “In the here and now with what's going on in the financing side, aluminium is more vulnerable that other metals.”
Financing deals are said to have tied up about 70 percent of the stocks in LME-monitored warehouse. Traders have said more than 1 million tonnes of global aluminium stocks are expected to be released from financing deals as credit tightens.
“We're wondering if the problems in Europe mean that financing is becoming more difficult for all the outstanding positions that have been out there in the warehouse world,” Brown said.
In other metals, tin was at $20,100 from $20,350 while zinc, used in galvanising was at $1,886 from $1,888. Battery material lead was
at $1,984 from $1,992 and nickel was at $16,961 from $17,075. - Reuters