Copper closed almost flat on Friday, as the dollar pared gains and data showed improved US consumer sentiment, but investors worried high inflation in China would lead to monetary tightening and erode demand. Copper for three-months delivery on the London Metal Exchange (LME) closed at $9,405 a tonne from Thursday's close of $9,410.
Chinese consumer price inflation sped to 5.4 percent in the year to March, the fastest since July 2008 and topping market forecasts for a 5.2 percent increase. Gross domestic product eased a touch in the world's top copper buyer. "The market is gradually getting a little bit more worried about what Chinese growth is going to look like over the medium term because of the ongoing tightening," Jesper Dannesboe, senior commodity strategist at Societe Generale, said.
"Growth is going to slow down quite significantly, it's going to be very bumpy." Putting more pressure on metals prices, China's production of refined copper and primary aluminium rose 23.7 percent and 7.4 percent respectively from a year earlier in March, hitting monthly records for both metals on expanded capacity and sufficient supply of raw materials.
Copper inventories at LME warehouses fell 375 tonnes to 450,425 tonnes, a small respite in an upward trend that has seen stocks of the metal used in power and construction climb by a fifth so far this year. Rising food and gasoline costs lifted US consumer prices overall in March, but underlying inflation pressures were contained and consumer confidence rose in April.
But earlier, data showed inflation in the euro zone climbed higher than expected in March to 2.7 percent year-on-year, adding to the case for further rises in interest rates. "...we might not see a decent pick-up in demand until the second half of the year, which leaves prices vulnerable in Q2," Standard Bank analyst Leon Westgate said in a note.
"That said, ample liquidity, dollar weakness, inflation concerns, and bullish perceptions of the longer term fundamentals, are likely to keep investment money flowing, likely resulting in a particularly volatile couple of months to come." Also knocking sentiment, Moody's cut Ireland's sovereign rating by two notches to the verge of junk status and kept its outlook on negative, pushing the euro lower, which deterred European investors from metals.
Meanwhile, finance leaders from the Group of 20 advanced and developing economies attempted on Friday to flesh out a plan to build a global economy less prone to the booms and busts of recent decades. Aluminium closed at $2,690 a tonne from $2,664. Zinc was $2,398 a tonne from $2,400 and battery material lead was at $2,651 a tonne from $2,613. Tin was at $33,100 a tonne from $32,225 and nickel was at $26,155 a tonne from $25,800.
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