Industrial metals lost ground on Thursday, with copper dropping more than 3 percent as grim economic data from the United States further clouded the outlook for metals consumption. Prices were little affected by the Bank of England's move to cut interest rates by another 50 basis points to a record low of 1.0 percent and European Central Bank decision to leave rates unchanged.
Copper for three month delivery on the London Metal Exchange fell as low as $3,288 a tonne and was at $3,329 a tonne at the close versus $3,415 at the close on Wednesday. "November's figure for the US factory orders data was revised and that triggered a sell-off across the complex," said analyst Leon Westgate at Standard Bank.
The drop in factory orders was a more modest rate than in November, which was revised down to a 6.5 percent plunge, the steepest dive since July 2000. Copper prices had climbed about 5 percent this week and hit a one-week high on Wednesday, lifted by better-than-expected macroeconomic data and hopes that the demand slump seen since August 2008 could be reaching a bottom. But analysts were cautious to be optimistic.
"I remain cautious because inventories are still increasing," said Robin Bhar, senior metals analyst at Calyon. "It's symptomatic when you're at the bottom or near the bottom that you would expect some improvement in the (macro) data." "It doesn't mean we're going to go straight back up again." In addition, inventories standing at record highs for many metals, were not very promising for the price outlook. Copper LME stocks rose 2,650 tonnes to 502,600 tonnes - the highest level since November 2003.
"Peak to trough, copper has declined 69 percent but remains above the marginal cash cost of production," Morgan Stanley analysts said in a note. "Our view is that copper can go lower." "Weak copper demand could cause inventory to double by year-end." There was some upbeat news however. Traders sources said China was buying copper to gradually triple its state reserves to about 1 million tonnes, while South Korea also plans to boost base metal reserves ahead of an expected economic recovery later this year.
Also fuelling greater optimism, Network rail, the UK's railway operator, has received the green light for a multi-billion pound investment programme. "There are obviously some signs of life," an LME trader said of the economic picture. "But that's like saying there are some signs of life when the patient is dying of cancer - we don't know whether this is sustainable or a normal re-stocking exercise."
Aluminium was supported after Russia's RUSAL, the world's largest aluminium producer said it would cut 11 percent of its annual aluminium output, 30 percent of alumina output and 5 percent of its staff as it tackles the global economic crisis.
Aluminium was at $1,433 per tonne from $1,439 while zinc, used to galvanise steel, fell to $1,144 a tonne from $1,1180 and battery-material lead was lower at $1,145 from $1,190. Tin was traded at $10,850 a tonne from $11,275 while nickel, key ingredient for stainless steel making, was at $11,450 a tonne from $11,750 at the close on Wednesday.
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