Copper fell to a three-week low on Thursday, breaking below a key support level, as delays to securing a bailout package for highly indebted Greece undermined sentiment and pushed the euro lower against the dollar.
Three-month copper on the London Metal Exchange traded at $8,220 a tonne in official rings, down from a close of $8,370 on Wednesday.
It earlier hit its lowest level since Jan. 23 at $8,209.50 a tonne, breaking below $8,280, which is seen as a key support level. Copper has risen around 9 percent so far this year.
“The markets are vulnerable to sentiment on what is happening in the euro zone. It's not because of euro zone consumption of copper ... but if the crisis deepens, it will impact global growth and developing countries' consumption of raw materials,” said Caroline Bain, an economist with the Economist Intelligence Unit (EIU).
“From a fundamental perspective, the copper market is very tight, and it's a sentiment-driven weakness at the moment on fears that the global economy is going to slow more than the markets anticipate.”
The metals markets also tracked a risk-off sentiment in the wider financial markets as hopes of a swift agreement to a bailout package for Greece faded.
A three-hour teleconference between euro zone finance ministers late on Wednesday failed to resolve all the issues surrounding a second aid package for Athens, putting off any decision on the matter until February 20 at the earliest.
The euro fell to a three-week low versus the dollar, adding pressure to commodities priced in the US currency.
Adding to negative sentiment, Moody's warned it might cut the credit ratings of 17 global and 114 European financial institutions in another sign the impact of the euro zone government debt crisis is spreading throughout the global financial system.
CHINA DEMAND UNCERTAINTY
Concerns also lingered in the metals market about the demand outlook for top copper consumer China, which has yet to pick up after the week-long Lunar New Year holiday late in January, in part due to lower order visibility on products for export to debt-laden Western economies.
“There are concerns about Chinese demand, the closed arbitrage window and lower January imports, but that overstates the situation because the Lunar New Year fell earlier this year,” said Matt Fusarelli of Australia-based consultancy AME Group.
“We're still quite bullish on copper prices, expecting around $4 a pound ($8,818 a tonne) in the second quarter.”
In industry news, output from the world's largest copper mine, Chile's Escondida, plummeted 24.6 percent in 2011 from a year earlier to its lowest level in nearly a decade on sinking ore grades and a two-week strike, the mine said late on Wednesday.
In other metals, aluminium traded at $2,164 a tonne in official rings, from Wednesday's close of $2,200, while battery material lead was at 2,008 from a close of $2,062.
Zinc, used in galvanizing, was untraded in rings, but bid at $1,972 from $2,012 a tonne. Tin was also untraded in rings, but bid at at
$24,595.
Nickel traded at $19,830, from $20,075.
The global nickel market was in a supply surplus by 17,000 tonnes last year, the latest monthly bulletin from the Lisbon-based International Nickel Study Group (INSG) showed. - Reuters