Copper shed nearly 9 percent to lead most other base metals lower on Wednesday as inventories rose and a firmer dollar weighed after the US election. The dollar erased some of its earlier gains against a basket of other currencies but remained stronger after posting its biggest one-day slide in 13 years the previous day and as Democrat Barack Obama won the US presidential election.
Obama captured the White House on Tuesday, defeating Republican John McCain to make history as the first black US president. "By and large it's going to be dollar driven," said Charles Cooper, mining analyst at Evolution Securities. "We're seeing the copper price and some of the other metal prices following that trend."
Cooper said the US election could off short-term relief to metals markets. However, he added: "We're facing a global recession that will effect demand for commodities and we feel that it will be exacerbated by companies reporting balance sheet write downs or negative inventory adjustments." Copper for three-month delivery on the London Metal Exchange closed at $4,070 a tonne from $4,350 on Tuesday and compared with a session low of $3,970.
On Tuesday, copper - often seen as a key gauge of real economic activity - rallied more than 8 percent on a weak dollar. A soft US currency makes dollar-priced commodities cheaper for other currency holders and lifted the asset class. The value of copper, used in power and construction, is down by more than 50 percent, since a record high of $8,940 in July.
"We believe that volatile price action is going to remain a feature of the base metals markets over the coming months, with a high number of shorts and deep-rooted nervousness," said a Barclays Capital research report. Poor demand is mirrored by continuous jumps in inventories. Stocks of copper in LME registered warehouses jumped 5,825 tonnes on Wednesday, bringing the total to 247,475 tonnes.
Since the start of October, stocks are up 24 percent, rising more than 35,000 tonnes in the last two weeks alone. "Unless there are any significant fundamental developments, we remain sceptical of rallies," Barclays Capital said. Adding to the gloom, investment bank UBS slashed its commodities outlook for the second time in just a few weeks, predicting a slowdown in global growth to 1.3 percent in 2009 from previous forecasts of 2.2 will eat deep into industrial raw material demand.
Reports on Wednesday highlighted the economic challenges facing Obama and foreshadowed weakness in the government's US labour market report due out on Friday. The US private sector jobs market deteriorated rapidly in October while the service sector contracted sharply as the worst financial crisis in 80 years hammered the world's largest economy.
Aluminium hit a low of $2,052 a tonne and was last at $2,091, from $2,105/2,110 on Tuesday. LME aluminium stocks fell 1,150 tonnes to about 1.5 million. "There is the dollar, but also it's a technical reaction to yesterday's sharp rally," said Leon Westgate, an analyst at Standard Bank. "The market is still very focused on the short-term picture and the base metals are looking to the stock and currency markets for direction."
Negative sentiment was not just limited to commodities, the FTSEurofirst 300 index of leading European shares ended down 2 percent to 954.34 points. Nickel fell 5.6 percent to a low of $12,180 a tonne, but ended at $12,300 from $12,900 at the close on Tuesday. Lead closed down $29 at $1,511 and zinc shed 6 percent to a low of $1,165 before ending at $1,180 from Tuesday's $1,239. Tin fell 2.7 percent to a low of $14,400 from Tuesday's close of $14,795. Tin closed at $14,900.
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