Copper prices slipped on Tuesday as concerns about political stability in Italy and Spain prompted caution among investors, but falls were kept in check by a strong euro and growing confidence in the outlook for global economic growth. Benchmark copper on the London Metal Exchange closed at $8,271, down from the close at $8,305 a tonne on Monday, when it hit a four-month intraday high of $8,346.
Confidence was shaken by a corruption scandal in Spain, where Prime Minister Mariano Rajoy faces calls to resign, and political uncertainty in Italy, which holds a general election later this month.
Spanish and Italian bond yields stabilised following a sell-off on Monday, but their outlook remaining volatile due to the political risks. "There are some concerns in the euro zone, and the market is looking for excuses to pause a little," said Andrey Kryuchenkov, an analyst at VTB. "Any rally (in metals markets) that is based on macro numbers alone cannot support sustained gains. We need to see more evidence of improving fundamentals," he added.
Helping perceptions of the outlook for the euro zone economy, a survey on Tuesday showed that businesses were more optimistic about the future but highlighted a growing chasm between the region's economies. The data helped the euro rise against the dollar, making commodities priced in the US unit cheaper for holders of other currencies. The vast US services sector expanded last month, extending a three-year run of growth. Optimism about the outlook for global growth was boosted last week when data showed US factory activity quickened in January and hiring increased, while Chinese factories extended a modest rebound.
Copper stocks in warehouses registered with the LME rose by 10,850 tonnes to 385,050, their highest level since December 2011 and up 83 percent since mid-October. Investors were closely monitoring demand indications from China, which accounts for 40 percent of refined copper demand, given that its markets will be closed next week for its New Year holiday celebrations. "In order for the LME to sustain its gains, we need to see more buying from China and some policy support. Otherwise the rally we have seen in some of the base metals will run dry," said Dominic Schnider, head of commodity research at UBS Wealth Management in Singapore.
"Things are going to be quiet over Chinese New Year," he added, referring to the Lunar New Year holidays which start at the weekend. Reflecting a lack of interest from Chinese customers, the ShFE copper contango was trading around the widest since March last year at about 550 yuan per tonne.
In other metals, three-month nickel, untraded at the close, was last bid at $18,695 from Monday's close of $18,725, while tin closed at $24,925 from $24,900. Three-month zinc closed at $2,176.5 a tonne from $2,185 and aluminium at $2,111 from $2,113. Official closing prices for benchmark lead were unavailable due to technical issues at the London Metal Exchange, the exchange said. Lead traded electronically at $2,458 at 1715 GMT, compared to $2,440 a tonne late on Monday. A closing price for lead was also unavailable on Monday due to a technical problems.
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