Concern about the fallout from credit losses and economic growth hit industrial metals prices on Wednesday, sending copper down 4 percent to an 8-month low. Zinc tumbled more than 6 percent and lead shed 4.4 percent while mining stocks in London such as BHP Billiton and Rio Tinto lost 4-5 percent in line with broader weakness in European shares.
Copper for three-months delivery on the London Metal Exchange fell to $6,475 per tonne, its lowest since March 16, and closed at $6,520, down $270 or 4 percent from Tuesday. "People are scared of the state of the United States economy," analyst Marc Elliott at Fairfax said.
Concerns about further possible write-downs by banks, and the possible impact of the credit crisis on global economy haunted investors and boosted risk aversion across financial markets. "The markets are so nervous - from equities to metals," another LME floor trader said.
Credit defaults, starting in the US subprime mortgage sector, have cost banks and other financial institutions tens of billions of dollars in writedowns since August and knocked the US housing market on its back, hurting metal demand from the sector.
"Any slowdown in the US economy is negative for the price of base metals," said Chris Brodie, manager of Krom River Partners' commodity hedge fund. The dollar fell to another record low against the euro at $1.4856 after the US Federal Reserve cut its 2008 growth outlook. The Fed said US economic growth will slow in 2008 to between 1.8 and 2.5 percent, down sharply from the 2.5 to 2.75 percent forecast in June, before picking up in 2009. "The weight of money is on the downside and copper could head down towards $6,400 a tonne," economist John Kemp at Sempra Metals said. "The trend at the moment is down."
Just after the official second ring union workers at Chile's Cerro Colorado said they had stopped working and were blocking access to the mine but there was no impact on prices. The mine, owned by BHP Billiton, produces about 115,000 tonnes a year.
"Overall sentiment across the base metals, with the exception of aluminium, remains bearish," analyst William Adams at BaseMetals.com said in a report. For lead, the possibility of shipments from Magellan restarting early next year, and for zinc the fear of a rush of exports from China ahead of export tax changes, weighed on prices, Adams said.
Lead was down 4.4 percent or $135 at $2,915 and zinc fell $150 or 6.3 percent to $2,220. "Lead should start to find support here, but the zinc market could really go, if selling in the Far East is continuing, to test $2,000," a European trader said.
A higher oil price, which hit a record high of $99.29 a barrel, was seen supporting aluminium due to its high energy consuming properties during production. Aluminium shed $23 to $2,521. "Aluminium is following the oil price, but I am bearish short-term, if it falls below $2,485 it could easily drop towards $2,400," another LME floor dealer said. Nickel fell $700 to $29,600 and tin was down $405 to $16,000.
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