Copper dropped to a two-month low on Wednesday as investors switched focus from the outcome of the US election to a weak European economy, a Greek austerity vote and the US "fiscal cliff" of tax hikes and spending cuts. Copper initially jumped on news that US President Barack Obama won a second term, fuelling hopes Washington would continue with economic stimulus measures, pushing down the greenback.
Three-month copper on the London Metal Exchange ended at $7,610 from Tuesday's close of $7,700. It earlier fell to its lowest since early September at $7,563.25 a tonne. It had risen as much as 1.4 percent to an intraday high of $7,806.25 after the US election results emerged.
"Investors have discounted the results of the election and have shifted their attention to other pressing issues, such as the looming fiscal cliff and a key budgetary vote going on in Greece," said Edward Meir, analyst at INTL FCStone. The European Commission said the euro zone economy will barely grow next year, European Central Bank President Draghi said the bank expects the euro zone economy to remain weak "in the near term" and data showed German industrial output fell more than forecast in September.
Copper is likely to extend losses in coming days after already falling more than 8 percent since touching a peak of $8,422 on September 19, said analyst Daniel Briesemann at Commerzbank in Frankfurt. "In copper there are risks of some setbacks in the very short term. Have a look at Greece, there's huge political risk in the euro zone, this should weigh on the euro and lead to a higher dollar," Briesemann said.
Speculators were expected to keep weighing on copper, which could revisit two-month lows around $7,600 touched on Monday and may even slide as low as $7,500, Briesemann said. Investor focus is now turning to a once-in-a-decade leadership transition in top copper consumer China due to start at a Communist Party congress that starts on Thursday. Investors are hoping the new government will announce new measures to spur growth. "Just as in the case of the US elections, investors will be glad when the party congress is finally out of the way," said a Shanghai trader.
Chinese downstream copper demand remains weak, with spot copper still trading at a discount to Shanghai front-month futures prices. China's plan to buy base metals for state reserves in an effort to cushion domestic smelters from slowing economic growth would support prices but would not significantly reduce bulging stockpiles, traders and analysts said.
Lead closed at $2,176 from Tuesday's close of $2,165. Briesemann said the supply-demand fundamentals looked positive for lead in the short term amid hopes for stronger battery demand in China and low availability of LME inventories. LME stocks are down 17 percent since February and 42 percent are cancelled and not available to the market. Lead spreads remained tight, with the premium of cash over three months rising to $12.50 by Tuesday's close from $10 on Monday and a discount of $6 on October 23. Zinc ended at $1,896 from Tuesday's close of $1,899. Stocks data showed 88,250 tonnes of fresh cancellations, increasing total cancelled material not available to consumers to 39 percent of the total. Nickel closed at $15,995 from $16,075 while tin ended at $20,300 from $20,625. Aluminium closed at $1,920 from a last bid of $1,920 on Tuesday.
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