London/Singapore - Copper sank to a four-month low on Monday as a surprise bailout plan for Cyprus that involved taxing bank deposits sent shockwaves through financial markets, causing the euro to drop against the dollar and spurring investors to shed risk.
Euro zone finance ministers demanded at the weekend that Cypriots pay up to 9.9 percent of their deposits as tax in exchange for a 10 billion euro ($13 billion) bailout.
The move broke with previous EU protocol that citizens' savings are sacrosanct.
The parliament of Cyprus was due to vote on the plan on Monday.
Shares, the euro and the bonds of southern eurozone members tumbled in response to the news, which was seen as setting a dangerous precedent that could ultimately lead to bank runs elsewhere in the euro zone.
LME benchmark three-month copper earlier fell to its lowest since November 9 at $7,545.75 a tonne, but later pared losses to trade down 1.88 percent at $7,604.25 a tonne by 12:00 SA time, making for a 4 percent loss on the year.
The most-traded July copper contract on the Shanghai Futures Exchange hit a seven-month trough earlier, LME zinc fell to an almost four-month low while ShFE zinc tumbled to its lowest in four years.
“Cyprus will impact metals. The repercussions haven't even been fully priced into forex and bond markets yet. The Cypriot parliament has to vote still, difficulties in Cyprus could spread. This is what markets are now pricing in after weeks of more settled conditions, or complacency arguably,” said BNP Paribas analyst Stephen Briggs.
Weighing on metals, the dollar hit a three-month high versus the euro on Monday following the Cyprus news.
A strong dollar makes dollar-priced metals costly for European and other non-US investors.
CHINA BUYING PROSPECTS
Market participants in China, which consumes 40 percent of the world's copper, saw signs that the lower prices may encourage buying.
A trader based in Shanghai said some buying interest was seen in China following the heavy price losses and a short-covering rally was possible.
“They will come back to buy on the cheap when the market stabilises tomorrow, assuming that is around the $7,600 level,” the trader said.
“Another few days' selloff might indicate a bottom, but the market is way too short right now, so we shall see,” he added.
Hedge funds and money managers raised their net short position in copper to a fresh four-year high and added to their bullish bets in gold in the week to March 12, Commodity Futures Trading Commission data showed on Friday.
Chinese Premier Li Keqiang said on Sunday that ensuring economic growth was his government's top priority, pledging to fight graft, tackle vested interests and calling for an end to a cyber-hacking row with the United States.
Some Chinese speculators use commodity imports such as copper to dodge strict domestic currency rules, as a way to fund property investments, so any pullback in property prices tends to trim copper demand.
“China's new premier didn't say anything to indicate he is worried about China's property market at his speech on the weekend, so that is neutral for prices,” Macquarie analyst Bonnie Liu said.
In other metals traded, zinc, used in galvanizing, fell 1.11 percent to $1,932.25 a tonne, having earlier hit its lowest in almost 4 months at $1,913 a tonne. ShFE zinc tumbled to its lowest in four years.
Zinc contracts typically have a high percentage of speculative investors and are more subject to moves driven by economic developments that some other metals markets.
Another big loser was aluminium, which fell 0.99 percent to $1,945 a tonne, having earlier hit its lowest in nearly four months at $1,933 a tonne.
Other LME metals contracts did not hit multi-month lows, but succumbed to selling pressure.
Battery material lead fell 1.51 percent to $2,188.50 a tonne, stainless-steel ingredient nickel fell 1.20 percent to $16,697, while tin fell 2.68 percent to $23,211 a tonne. - Reuters