Copper fell 4 percent on Tuesday, haunted by demand concerns as ongoing turmoil in the financial sector hit equities, and data showed a chunky surplus in the world copper market in January.
Copper for three-months delivery on the London Stock Exchange fell to $4,185 a tonne at 1127 GMT from $4,350 on Monday when markets balked on fears a deadly swine flu outbreak could reach pandemic proportions.
The metal used in power and construction hit a day's low of $4,163, its lowest since early April. Among other industrial metals tin slid to $11,800 a tonne from $12,400, having dropped nearly 6 percent to a day's low of $11,700 a tonne.
Fears over the economic impact of the flu continued to knock equities, but analysts said the initial knee-jerk reaction had been overblown due to general jumpiness in an economic downturn.
The swine flu triggered a sell-off... (but) the initial reaction should calm down, said Andrey Kryuchenkov, an analyst at VTB Capital. Full-scale risk aversion is not likely.
The new virus has killed up to 149 people in Mexico and world health experts moved closer on Monday to declaring it the first flu pandemic in 40 years as more people were infected in the United States and Europe.
Concerns for the financial sector clouded the demand outlook as the Wall Street Journal said U.S. regulators have told Citigroup Inc (C.N: Quote) and Bank of America Corp (BAC.N: Quote) they need to raise more capital following the results of recently concluded 'stress tests'.
Stoking demand concerns, the International Copper Study Group (ICSG) said the world copper market saw a surplus of 155,000 tonnes in January, compared with a deficit of 22,000 tonnes in January 2008.
Some believe the surplus could have shrunk since January.
The current surplus should be smaller if we look at falling stockpiles at LME and Shanghai Futures Exchange, said Judy Zhu, an analyst at Standard Chartered.
But tempering nerves, LME copper stocks have been falling since February and on Tuesday dropped by 5,000 tonnes to a three-month low of 420,275 tonnes.
Cancelled warrants -- material earmarked for delivery -- rose to 70,125 tonnes from 67,600 tonnes the day before. The market believes the recent rise in cancelled warrants represents metal heading for China, the world's biggest copper consumer.
Copper stocks are dropping substantially so this is still positive, Kryuchenkov said. And cancelled warrants are holding up -- there's still support from the physical side.
Concerns about supply were reflected in the premium for cash over three-month contracts for copper.
Analysts attributed the backwardation -- which more commonly occurs in bullish markets -- to a recent fall in stocks signalling possible tightness in the copper market.
China's State Reserves Bureau's purchase of large quantities of copper in the first three months is widely believed to have driven copper's rise of more than a third this year.
Aluminium, used in transport and packaging, was at $1,429 a tonne from $1,446. Demand concerns dogged the metal as inventories at LME warehouses climbed yet again. Stocks rose by 24,650 tonnes to a record above 3.7 million tonnes.
Zinc, used to galvanise steel, was at $1,345 from $1,372, while battery material lead fell to $1,313 from $1,360. Nickel fell to $10,875 from $11,375.
(Editing by Peter Blackburn)
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