Copper fell on Thursday as the euro dropped versus the dollar after the European Central Bank chief disappointed investors hoping for action to contain the euro zone debt crisis, which is hurting the global economy and eroding demand for metals. Benchmark copper on the London Metal Exchange (LME) hit its lowest since late June at $7,311 a tonne after ECB President Mario Draghi spoke at a news conference and the bank announced it was keeping interest rates on hold at 0.75 percent.
The metal used in power and construction closed at $7,330 from Wednesday's close of $7,425. Stocks tumbled and the euro erased gains after Draghi, rather than take immediate action, signalled the ECB would push down borrowing costs for euro zone countries through upcoming bond purchases.
That disappointed investors expecting more immediate action, particularly after the Federal Reserve on Wednesday, embracing a similar wait-and-see approach, did not announce any new stimulus measures to boost US growth. "Once again, we have no commitment to action from the ECB, and no execution of promises previously made. Nothing seems set to happen now," said Carl Weinberg, chief economist at High Frequency Economics. The euro surrendered gains versus the dollar to hit a session low, and the dollar climbed against a basket of currencies. A stronger dollar makes commodities priced in the unit more expensive for holders of other currencies.
Reflecting a lack of conviction about copper's short-term price direction, the open interest in the LME copper contract hovered around near-five-year lows hit last week. "Open interest is extremely low. The majority of players are struggling to put together a macro view for the rest of the year. Sentiment remains negative. There needs to be more clarity about what is happening in Europe," said Andrey Kryuchenkov, analyst at VTB Capital. While further stimulus measures from central banks could boost prices for metals and hard assets against paper currency, worries still linger about the demand outlook for industrial metals in light of weakening global economic growth.
Copper prices have fallen by close to 15 percent since hitting a 2012 peak in February at $8,765, dropping by 9 percent in the second quarter on worries about the outlook for demand from top consumer China, which has remained sluggish this year. China accounts for around 40 percent of refined copper demand. A downturn in forward indicators of coal, iron ore and steel prices is ominous, say shipping firms and bulk commodities traders.
"Hope for a boost in 2H12 consumption, as a result of Chinese infrastructure and other central bank stimulus measures spending, continues to be overshadowed by euro-fears which has kept a lid on commodity prices generally," RBC Capital said in note.
Battery material lead closed at $1,854 from Wednesday's close of $1,884 and aluminium at $1,844 from $1,861. Zinc, used in galvanising, closed at $1,812 from $1,820 at the previous session's close, while tin closed at $17,430 from Wednesday's close of $17,800 a tonne. A physical tin contract launched this year in the world's top tin exporter Indonesia is struggling to attract enough liquidity to challenge the benchmark London contract, with the exchange authorities now looking to the government to boost volumes. Nickel closed at $15,250 a tonne from $15,550.
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