Copper falls on Fed, weak China data

Published Jun 20, 2013

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London - Copper fell to a fresh 1-1/2 month low on Thursday, hit by the US Federal Reserve's intention to begin scaling back stimulus measures later this year and further evidence that the economy of top metals consumer China is slowing down.

Mirroring falls in the base metals complex, aluminium fell to its lowest level in more than 3-1/2 years, while nickel dropped to its lowest level in four years.

Tin fell to its lowest in 9-1/2 months.

In a move with impact across financial markets, Fed chairman Ben Bernanke confirmed that US economic growth was strong enough to begin tapering its $85 billion in monthly asset purchases later this year.

Adding to market jitters was data showing China's factories showed activity slumped to a nine-month low in June, heightening the risk of a sharper second quarter slowdown.

China is the world's top consumer of copper, accounting for around 40 percent of global refined demand.

Benchmark three-month copper on the London Metal Exchange fell more than 2 percent to $6,802.75 a tonne, its lowest level since early May. It traded at $6,835 a tonne in official rings, down from a last bid of $6,960 on Wednesday.

Gold tumbled to its lowest level in more than 2-1/2 years while oil fell more than $2 a barrel.

“There is panic selling all over the commodities sector after the Fed's comments and the data from China,” said Daniel Briesemann, analyst at Commerzbank.

“We are surprised to see such a strong reaction as the Fed is only adhering to its long-known plan. We think the falls (in markets) are overdone and I would expect to see a counter move in the next few days.”

The Fed's bond buying has largely supported commodity prices by lowering the value of the US dollar and making assets priced in the greenback cheaper for holders of other currencies.

But following the latest Fed comments, the dollar has firmed, putting pressure on metals prices.

“Our global strategists believe the Fed may start tapering its asset purchases in September, a potential headwind for exchange-traded commodity prices despite seasonally better demand,” ANZ analysts said in a note.

Also dampening the outlook for copper prices was the expectation of further supply entering the market this year, as Rio Tinto plans to start exporting copper from the Oyu Tolgoi mine in Mongolia on Friday, after resolving demands from the government.

Inventories of copper in warehouses monitored by the LME have been climbing in recent weeks to touch 10-year highs, contributing to the metal's 14 percent fall this year.

In other metals, benchmark aluminium traded at $1,794 a tonne, from $1,830 on Wednesday, having earlier fallen to its lowest since early October 2009 at $1,789.50.

Nickel, untraded in rings, was bid at $13,810 from $14,200, having earlier fallen to its lowest since late May 2009 at $13,778.

Tin, untraded in official rings, was bid at $19,520 a tonne from a close of $20,100 on Wednesday.

It earlier hit a low of $19,250.

Zinc dropped to its lowest in a month in intraday trade at $1,820.50.

It was untraded in rings, having been bid at $1,831.

Lead, also untraded in rings, was bid at $2,017. - Reuters

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