Copper slipped to a 7-1/2-month low and aluminium to a seven-month trough on Tuesday as the market worried about demand growth, particularly in China, the world's top consumer of industrial metals. Three-month copper on the London Metal Exchange hit $6,778 a tonne, its lowest level since January 22.
The metal used widely in power and construction ended at $6,815 a tonne from $6,900 a tonne at the close on Monday. Aluminium, used in packaging and transport touched $2,595, the lowest since February 6, and closed at $2,603 a tonne from $2,650 on Monday. "The main worry at the moment is weakening demand conditions.
The Chinese story is particularly worrying given the importance of that country for base metals," said Dan Smith, metals analyst at Standard Chartered. Smith also said the stronger US currency, which makes dollar-denominated metals more expensive for holders of other currencies, was also weighing on base metals. "In the short term I think prices could go lower," he said.
The dollar hit session highs against a basket of currencies, while the yen surged broadly as investors concluded US action to save two top mortgage agencies did not alter fundamental global economic weakness. "Recession fears are growing in Europe and some expect Asia to slow down strongly," said Eugen Weinberg, commodities analyst at Commerzbank.
LME copper prices have slumped about 20 percent since their record high in July of $8,940 a tonne. Part of the problem for copper has been the heavy flows of material into LME warehouses Copper stocks at around 202,000 tonnes are the highest since March 2007. In Shanghai, copper prices rose to a premium over London futures for the first time since January.
The gap for Shanghai's three-month copper futures to the benchmark London contract, including China's 17 percent value-added tax, flipped into a premium of 348 yuan on Tuesday. The discount had been as wide as 6,000 yuan this year. Initial data for China's refined copper metal imports in August is due later this week.
Lead ended lower at $1,770 a tonne from an earlier $1,765, the lowest since August 20, and from $1,851 on Monday. Nickel slid to $18,500 from $18,850, while zinc touched a low of $1,696 - the lowest since August 20 - before closing at $1,718 from $1,770 on Monday.
"The situation is looking better for some metals with lead, zinc and nickel coming close to the cost of production," Commerzbank's Weinberg said. Weinberg said that as prices fell producers would cut back output, reducing inventories, and prices would soon stabilise. LME tin ended at $18,600 from $19,100 on Monday, despite a near 30 percent decline in exports from Indonesia in August.
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