Global worries push copper below $7,000

Copper dropped below $7,000 a tonne on Tuesday as markets were buffeted by concerns about eurozone contagion, slowing growth in Chinese demand and a stronger dollar.

The red metal made headlines just weeks ago as it rose above $8,000 but it has since suffered a 13 per cent correction from its April 12 peak.

Copper, which is seen as a barometer of the state of the global economy because it is widely used in electrical appliances, fell 5.5 per cent to touch an intraday low of $6,998 – its lowest level since February – before inching up to $7,032.

The main concern weighing on industrial metals in recent weeks has been that the spectacular expansion in China’s demand for raw materials might slow as the authorities attempt to keep growth in check.

That fear was crystallised on Tuesday as traders on the London Metal Exchange had their first chance to react to the weekend’s news that China’s monetary authority had increased the amount required by state banks to be held in reserve, the third such move this year. David Wilson, metals analyst at Société Générale, said the price falls were a “knee-jerk reaction” to the Chinese tightening.

The other factor weighing on base metals has been continued risk aversion on the back of jitters over the eurozone debt crisis and the charges brought against Goldman Sachs.

Investors appeared unconvinced by emergency measures announced at the weekend to shore up Greece’s public finances.

“What you’re seeing right now is a combination of unfortunate factors that happened at the same time,” said Michael Widmer, metals strategist at Bank of America Merrill Lynch.

But he added that Tuesday’s price moves were largely sentiment-driven. “The underlying data globally is actually quite strong,” he said.

Randy North, a trader at RBC, said prices may continue to fall until elections in the UK and Germany this week removed some political uncertainty.
By Jack Farchy and Neil Dennis


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