Copper slipped on Wednesday as growing concern about the euro zone debt crisis prompted caution in the market ahead of a European Union summit that investors fear could fail to materially tackle the region's debt troubles.
Three-month copper on the London Metal Exchange (LME) was 0.5 percent lower at $7,320 by 11:00 SA time, down from Tuesday's close of $7,359 a tonne.
The metal is down more than 13 percent so far this quarter and is trading around 4 percent lower for the year to date.
Hopes of the EU summit yielding any solution to the euro zone debt crisis evaporated after German Chancellor Angela Merkel flatly rejected the idea of common euro zone bonds, even though European Council President Herman Van Rompuy on Tuesday put forward the case for them.
“There have been negative headlines surrounding the EU summit with Merkel's comments. It is not really fundamentals that are driving commodity markets at the moment as the macro overlay is putting pressure on prices,” said Robin Bhar, analyst at Societe Generale.
“Demand (for base metals) is pretty subdued as we move into the holiday season and I do expect prices to probe the downside.
Copper could push below $7,000 a tonne.”
The dollar eased from earlier highs and safe-haven German bonds were steady as markets hold fire ahead of the June 28-29 summit in Brussels.
“The EU summit later this week is an event risk ahead of which many market participants are likely to remain on the sidelines,” Credit Suisse analysts said in a note.
“Transferring financial risks and powers to the EU level faces significant hurdles. The markets will be closely watching whether EU leaders at the summit are willing to further the discussion on pooling banking supervision and risks before a fiscal union.”
ALUMINIUM PRESSURED
Aluminium fell to a new low from June 2010 at $1,835 a tonne, mirroring falls in Shanghai aluminium which dropped to its lowest in more than three years on news China's top aluminium producing province was giving some smelters a discount in their electricity bill, fuelling overcapacity fears “Investors who were holding a lot of aluminium stocks have been dumping those along with other base metals positions,” said a Shanghai-based trader with an international firm.
“While things look bad for aluminium, there isn't a particular reason for selling the other metals. I think these investors have been feeling bearish for a while now and the subsidy news gave them an excuse to do so,” he added.
LME aluminium later recovered to trade at $1,837, from Tuesday's close of $1,845.
Other metals also fell to multi-month lows. Zinc dropped to its lowest since late October at $1,745, before recovering slightly to $1,750, from Tuesday's close of $1,776.
Lead hit its lowest since July 2010 at $1,742 a tonne, before recovering to $1,751.75 from Tuesday's close of $1,768.
Nickel fell to $16,244 from $16,275 a tonne while tin slipped to $18,450 from Tuesday's close of $18,560.
In industry news, commodities trader Glencore, scrambling to save its $26 billion bid for miner Xstrata , will need to sweeten the terms or put its long-desired deal at risk after key shareholder Qatar threatened to oppose the offer. - Reuters