Copper dropped to a three-week low on Wednesday, in its biggest one-day fall since mid- April, on jitters about the impact on financing deals from a probe at a Chinese port. The metal used in power and construction was also under pressure from signs of a surplus and doubts about the outlook for demand from top metals consumer China.
Benchmark copper on the London Metal Exchange (LME) closed down 1.24 percent at $6,785 a tonne after sliding to a session low of $6,760 a tonne, its lowest level since May 12. COMEX June copper also hit a three-week low and was down 1.5 percent at $3.09 per lb by 1600 GMT. China's Qingdao port said it was investigating whether iron ore warehouse receipts were fraudulently used multiple times to raise finance from different banks, Xinhua news agency reported.
While Xinhua reported that the probe was limited to iron ore financing, trading and warehousing sources have told Reuters it was also looking at the suspected multiple use of copper and aluminium warehouse receipts to raise financing. "I think it's (copper) got more downside to go," said analyst Vivienne Lloyd at Macquarie. "That (the probe) will have the effect of making the banks extremely cautious about to whom they will issue letters of credit."
In another sign of concern, copper premiums in Shanghai fell after traders cited concerns about the probe at Qingdao, China's third-largest port. "If this is about financing, that's a lot of metal (that could be unravelled). Banks are concerned and nervous about it," said a New York trader. The premium for LME cash copper over three-month prices has fallen from last week's two-year high of $101 a tonne to $50 on Wednesday, indicating that market tightness has been easing.
"The market expected that any available metal would disappear into China's state reserve. But in the last week following state purchases, there has been a drop in premiums for delivery into China," Nic Brown, head of commodities research at Natixis said. Also weighing on copper was the prospect of more supply after foreign copper miners in Indonesia agreed in principle to pay a controversial export tax, according to the country's deputy finance minister. This followed a series of talks aimed at restarting concentrate exports after a near-five-month halt.
Other metals were also weaker, including nickel, which closed down 0.26 percent at $19,025 a tonne. Nickel has surged 38 percent this year on an export ban on unprocessed ore exports from Indonesia, but is down 11 percent from a peak of $21,625 hit on May 13. While the nickel price has been taking a breather in recent weeks after the earlier sharp gains, many investors and analysts expect more gains in the second half.
"So far the impact of the ban has been muted by the fact that there are such large inventories around the world, but the market is starting to prepare for what happens in 2015 and beyond," Jim Lennon, a consultant with Macquarie, told a briefing. Macquarie forecasts nickel will rise to $23,500 a tonne in the fourth quarter and $26,000 next year. Aluminium fell to its lowest level in a week at $1,815 a tonne in intraday trade, before paring losses to finish down 0.57 percent at $1,835.50.
The discount for cash aluminium versus three-month prices fell to an 18-month low of $22 a tonne on Tuesday before rising to a $24.25 discount on Wednesday. This compares to a discount of $45.50 in early May. "This (narrowing contango) is a bearish factor for premiums as it reduces the attractiveness of financing deals," Harbor Aluminium Intelligence Unit said in a note. Lead was the biggest loser, falling 1.5 percent to close at $2,103 a tonne, while zinc finished down 0.43 percent at $2,079 and tin lost 0.37 percent at $23,225.
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