Copper fell on Friday, alongside global equities, on unrelieved worries about economic growth and the impact on metals demand after the U.S. and Europe failed to convince investors they had firm plans to fix their troubled economies.
The euro sank to its lowest in nearly six months against the dollar, making metals priced in the U.S. unit more expensive for holders of other currencies. U.S. Federal Reserve Chairman Ben Bernanke gave no steer on new stimulus measures, and President Barack Obama's proposed $447 billion growth and job creation package failed to soothe investors.
The economic gloom is the backdrop of a meeting of G7 finance chiefs on Friday who are under heavy pressure to take action to revive flagging economic growth in rich nations and calm the biggest confidence crisis since the credit crunch.
It's certainly the case that the base metals markets are a bit lower, hand in hand with the fall we've seen in equity markets, and other financial markets, Nic Brown, head of commodities research at Natixis. There are clearly concerns about growth.
Three-month copper on the London Metal Exchange was down 1.7 percent at $8,964 a tonne by 1020 GMT from $9,115 at the close on Thursday. Even data showing that inflation in China pulled back in August from a three-year high in July, failed to lift sentiment in the base metals market. The data lends support for a pause in Beijing's policy tightening campaign.
But Brown said the growth concerns were overplayed.
I'm an optimist, he said, and I think the longer term prognosis is good.
He pointed to substantial de-stocking of metals in China and elsewhere. Data on Friday showed withdrawals from LME-monitored warehouses across most major contracts, apart from tin and zinc, helped by the arbitrage -- lower three-month LME metal prices than the most active Shanghai contract prices. The fall in copper stocks was small, but there were some healthy orders from South Korea. Lead stocks fell by 925 tonnes, with lots of deliveries out in what appears to be a pick-up in demand.
I would look at the situation in China as one where, whether because it's concerns about economic growth or more likely because of monetary tightening, inventories have to come down quite substantially, and they are currently at low levels, Brown said. I think Chinese consumers are aware they will have to rebuild those inventories in the not too distant future.
Tight supplies will also continue to underpin copper prices. A strike at Peru's third-largest copper mine, Cerro Verde, as well as a strike scheduled from Sept. 15 to Oct. 15 at Freeport McMoRan Copper & Gold's Grasberg mine in Indonesia, the world's third-largest, threaten to squeeze supply In nickel, LME-monitored warehouses have reported big outflows in recent days as physical consumers have reportedly started to step up purchases of refined nickel, used to produce stainless steel.
At current price levels, major steel producers are reportedly using more refined nickel again as the cost advantage of competing nickel pig iron has softened, Credit Suisse said in a note. This should provide nickel with some fresh impetus on the demand side. While the sector will continue to depend on the broader macro economic environment, fundamental dynamics point to further price support.
LME nickel fell 2.4 percent to $21,559, from $22,050 at the close on Thursday. Tin was $23,875 from $24,475, zinc was $2,211 from $2,251, lead was $2,443 from $2,490, and aluminium was $2,390 from $2,420.