Copper hit a one-week low on Thursday after the Federal Reserve dashed hopes of aggressive stimulus measures for the US economy, with slow factory activity in China and Europe raising fears about the outlook for economic growth and metals demand.
Three month copper on the London Metal Exchange traded at $7,432 a tonne in official rings, from a close of $7,545 a tonne on Wednesday.
Prices earlier hit the lowest in a week at $7,388 a tonne and have tumbled more than 12 percent this quarter and are now down 3 percent for the year.
The Federal Reserve extended its stimulus policy due to a weakening US recovery, but stopped short of announcing a third round of quantitative easing which some investors had been hoping for.
Adding to the downbeat sentiment in markets was data showing Chinese and European factory activity slowing.
In China, the factory sector shrank for an eighth straight month in June as export orders sentiment hit its weakest level since early 2009, according to a survey indicating its economic trough may extend well into the third quarter.
“There were some hope that the Fed would take further aggressive measures (to stimulate the economy) and the market has been disappointed,” said Ross Strachan, economist at Capital Economics.
“Meanwhile, the decline in Chinese PMIs is also weighing on the market as it underpins just how weak things have been in
In Europe, preliminary manufacturing and service sector data across the 17-nation euro area showed the downturn in the private sector was becoming entrenched as falling orders and rising unemployment hit confidence.
“For China it shows (June's) interest rate cut hasn't really filtered through to industry, although we do think this loosening of policy will lead to a recovery in demand in China later in the year,” strategist Nikos Kavalis of RBS said.
“Even though the China figures were unspectacular, the market is by no means terrible. We are nowhere near where we were after 2008, God forbid, and this is also reflected in prices that still offer pretty nice margins for producers.”
China is the world's biggest consumer of metals, accounting for 40 percent of refined copper demand last year.
Worsening demand expectations also impacted other metals, with aluminium hitting a new two-year low, lead at its cheapest since October and zinc and tin falling to nearly six-month lows.
SHANGHAI STOCKS RISE
A weekly inventory report of copper stocks held in warehouses monitored by the Shanghai Futures Exchange (ShFE), released a day early due to a holiday on Friday in China, showed a net build of 6,941 tonnes.
“It looks very much like people played the cash arb game last week,” said analyst Nick Trevethan of ANZ.
A steep fall in LME copper prices to six-month lows helped narrow the price differential between Chinese and international copper prices, burnishing the allure for local traders to export unwanted inventory.
In May, China exported 102,375 tonnes of copper, mostly to South Korea, in part because of stuttering local demand.
Across other metals, aluminium traded at $1,884 in official rings, from Wednesday's close of $1,905.
Tin was untraded in rings, but bid at $19,175 from $19,200 while zinc, also untraded in rings, was bid at $1,851 from 1,867 on Wednesday's close.
Battery material lead was untraded in rings, but bid at $1,860 from $1,882 and nickel, also untraded in rings, was bid at $16,865 from $17,200. - Reuters