Risk aversion drove copper to a three-week low on Monday as investors fretted about the potential impact of fraud charges against Goldman Sachs, Wall Street's most influential bank and a leading commodities player. Also hitting copper was a rising US currency that made dollar-priced metals more expensive for non-US investors.
Copper for three months delivery on the London Metal Exchange touched a session low of $7,610.25, its weakest since March 29 and closed at $7,696 a tonne, versus $7,763 on Friday, when it lost 2.3 percent. Commodity and equity markets started falling on Friday after the US Securities and Exchange Commission charged Goldman Sachs with fraud over its marketing of a debt product tied to subprime mortgages that was designed to fail.
"(The) Goldman story was a trigger to the market. A push above $8,000 per tonne for copper would be unjustified at this moment," said analyst Andrey Kryuchenkov at VTB Capital. "This week will all be about Goldman and Greece, markets are focused on that," he said.
Highlighting risk aversion was Friday's 15.5 percent surge in the CBOE Volatility index, Wall Street's fear gauge. Robin Bhar, analyst at Credit Agricole, said investors were worried about what new regulations might be imposed on banks. "A lot of the price increases from 12 months ago have been due to risk taking," he said. "Any measures to curb the banks' risk-taking will have an impact."
Investors are also concerned about the demand outlook from China, as the world's top consumer of base metals reins in speculation in its red-hot property market. Chinese buying - which has been a crucial support for base metals in a downturn that crippled global demand - helped copper surge 140 percent in 2009. The metal, used extensively in power and construction, hit a 20-month high above $8,000 a tonne earlier this month.
This year's star performer nickel was at $26,650 from $26,705. The key ingredient for stainless steel has jumped more than 40 percent year-to-date, as falling stocks have triggered market tightness. Investors are also watching a dominant position holding 50-80 percent of LME nickel.
On Monday, ELG Haniel GmbH Group, a major supplier of secondary raw materials to the global stainless steel industry, said prices at around $26,000 a tonne are being driven mostly by funds, with an increase in stainless steel output and shortfall of stainless scrap supply having little bearing. Aluminium closed at $2,369 from $2,435, zinc was at $2,390 from $2,423 and lead was at $2,240 from $2,261. Tin traded at $18,825 from $19,200.
Traders were keeping an eye on a dominant position holding 50-80 percent of LME lead. The battery material, which has shed 9 percent in the year-to-date, is the worst performing base metal so far in 2010. "They may well have a genuine reason, a physical commitment," Bhar said of the holder of the dominant position. "But it does seem strange that they need to have such a hold now. April is a traditionally weak season for lead. It doesn't make sense." Stocks of lead in LME registered warehouses were at 179,950 tonnes, their highest since March 2003.
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