Copper dropped to its lowest in almost a month on Wednesday before recovering with help from a stronger euro, but worries remained that a darkening debt outlook for Spain and the euro zone could hit global demand for industrial metals.
Benchmark copper on the London Metal Exchange (LME) traded at $7,440.50 a tonne in official rings or 0.3 percent up from Tuesday's close of $7,417. Prices earlier fell to $7,344.25 a tonne, the lowest since June 27. Serious doubts about the euro zone's ability to resolve its debt crisis have resurfaced and hit metals prices in the last few days.
Spanish bond yields spiked on Tuesday as investors fretted about the possibility that Madrid may need a full-blown sovereign bailout and EU officials said Greece had little hope of meeting the terms of its bailout, casting fresh doubt on its future in the euro zone. "There are renewed concerns about global growth and in particular about sovereign debt issues in Spain, Italy and Europe," Barclays analyst Gayle Berry said.
Markets were spooked by surveys on Tuesday suggesting the struggles of the US and euro zone economies intensified in July. "The market largely ignored yesterday's flash June manufacturing PMIs from HSBC. Either way, we expect recent aggressive rate cuts as well as fiscal stimulus to produce results and help to boost economic activity towards the end of the third quarter," said VTB Capital in a research note.
China is the world's top consumer of copper, accounting for 40 percent of refined demand last year. Copper was helped by a jump in the euro, which recovered from a two-year low against the dollar on Wednesday, rising sharply on comments from European Central Bank policymaker Ewald Nowotny that he could see grounds for giving the euro zone bailout fund a banking licence.
Analysts said such a move would give the European Stability Mechanism more firepower to fight the debt crisis, but the market might have put too much emphasis on the comments, given ECB opposition to date. A weaker US unit makes dollar-priced commodity such as metals cheaper and therefore more attractive for holders of other currencies. Analysts think copper is likely to trade within the $7,200-7,800 a tonne range in the near future. "I have not seen anything yet that makes me think we are going to break out of the range," Berry said.
"I think we need an event shock for that to happen. You still have the push-and-pull factors of the potential for China to come out and announce a bigger-than-expected policy stimulus or a third round of quantitative easing in the US There is quite a lot of policy risk against a move lower in prices." In other metals, tin traded at $17,770 from $17,525 and zinc, used in galvanising, at $1,810 from $1,797 at Tuesday's close.
Battery material lead was untraded in rings but was bid at $1,864 from $1,860 and aluminium, also untraded, was bid at $1,880 from $1,869. Nickel traded at $15,755 from $15,750. In industry news, LME shareholders voted in favour of a $2.2 billion offer by the Hong Kong stock exchange for the British institution, the world's largest industrial metals marketplace.
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