Copper drops

Copper prices fell more than three percent on Wednesday, reversing a rally from the previous session as concerns about the eurozone debt crisis eroded confidence and prompted worries about the demand outlook for industrial metals. Three-month copper on the London Metal Exchange (LME) fell 3.2 percent to close at $7,5 40 a tonne on Wednesday, down from a close of $7,790 in the previous session when it hit a three-week high.
"The first day back for the new year saw a flush of enthusiasm...the second day in and it would appear the focus returns once more to the previous worries, primarily over some of the debt concerns in Europe," said analyst Duncan Hobbs of Macquarie Securities. "I think this time of the year, ahead of the Chinese new year festival, it's likely the major macro data, political news agenda will continue to set the tone for the exchange traded commodities," he added.
Worries over the eurozone debt crisis and the region's banks hit global stocks and boosted the dollar on Wednesday after Italian lender UniCredit priced a rights issue at a huge discount and a German bond auction failed to impress. Germany sold 4.06 billion euros of government bonds, drawing greater demand from investors than at the bond's launch in November. France will hold a debt sale on Thursday, followed by Spain and Italy next week.
All eyes will be on a meeting between France's Nicolas Sarkozy and German Chancellor Angela Merkel in Berlin on January 9 for talks that are likely to centre on new rules to enforce budget discipline across the European Union. A stronger dollar also pressured metals because priced in dollars, commodities become more expensive for holders of other currencies. The dollar continued to strengthen on Wednesday and climbed to a session high against the yen and euro as persistent worries over eurozone sovereign funding requirements kept the safe-haven greenback in demand.
Helping to support the dollar was data showing that US factory orders slightly beat expectations in November, while October's orders were revised to show a smaller fall. Further ahead, a stronger Chinese currency is shaping up to become a greater force on metals prices, Standard Bank said in a note. With a stronger yuan, Chinese consumers could purchase more dollar-priced commodities with their money. "Should the Eurozone debt crisis finally evolve into a currency crisis over the coming year, as participants start to express their view on the economic bloc in the euro, rather than in the bond markets, arguably the CNY:USD exchange rate may become the main currency driver impacting on metal prices," it said.
The Chinese yuan has been steadily appreciating against the dollar since September 2010. China is the world's major consumer of copper and accounts for some 40 percent of refined demand. "With China so close to its New Year holidays, it's still too early to detect whether sentiment has shifted, positively or negatively, with the market only likely to start ramping up activity in February," said Standard Bank in a note. China's Lunar new year holiday will run for a week from Monday January 23.
In other metals, three-month aluminium ended untraded in the final rings but bid at $2,064 from Tuesday's close of $2,076 a tonne, while battery material lead finished at $2,060 from $2,100 a tonne. Aluminium stocks in LME-registered warehouses rose by 4,425 tonnes to a fresh record high of 4,983,175 tonnes, data showed. In news, bankrupt primary aluminium producer ZALCO is in talks with eight potential buyers for a take-over of part or all of its plant in Zeeland, the Netherlands, the company's receiver said on Wednesday.
Soldering metal tin finished at $19,605 from $19,995, while zinc ended at $1,869, from $1,878. Nickel closed at $18,800 a tonne, down from Tuesday's close of $18,900. In industry news, China's large copper smelters and global miner BHP Billiton BHP.AX BLT.L have settled 2012 term copper concentrate treatment and refining charges at $60 a tonne and 6 US cents a pound, smelter sources said.