Copper fell on Monday as investors lost enthusiasm for a last-ditch 10 billion euro ($13.00 billion) bailout deal reached by Cyprus and international lenders, and were disappointed with modest demand growth from top consumer China. Also weighing on the metal, the latest London Metal Exchange data showed copper stocks in official warehouses rose 2,875 tonnes to 565,350 tonnes, their highest level in nearly 10 years.
Added to this, data on Friday showed copper stocks monitored by the Shanghai Futures Exchange hit their highest in nearly 11 years, indicating demand in China, which consumes 40 percent of the world's copper, remains subdued. Three-month copper on the London Metal Exchange ended at $7,620 a tonne, down from Friday's close of $7,655. Cyprus clinched a last-ditch deal with international lenders early on Monday morning to shut down its second-largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians, in return for the bailout.
After initial relief at the news, investors grew wary as unlike previous peripheral euro zone country bailouts, the Cyprus deal tapped individual bank deposits, which up to now had been protected. European shares trimmed gains while German Bund futures hit a session high, after the head of the Eurogroup said the Cyprus bailout deal could be a new template for resolving euro zone banking problems. "European banking regulators are trying to establish the principal of a banking union, and they've undermined it by saying in special cases we can ignore these rules and depositors at banks can be hit," said Nic Brown, head of commodities research at Natixis.
"In terms of the growth picture, the global outlook remains patchy at best," said Ed Meir, analyst at INTL FCStone. For now, traders remain mixed on copper's next step. Its demand fundamentals are worsening due to swelling supply but the dominance of short or sell position holders signals that any rally could ignite a vicious round of short-covering. "I am going for up now. Price action in the past two weeks has shown a base in metals. Soon shorts will cover, but copper will be capped at $7,900 to $8,000," said a Singapore based trader. "If it happens, it's going to happen fast." Hedge funds and money managers raised their bullish bets in gold by 63 percent and added their net short position in copper to a fresh four-year high in the week to March 19, Commodity Futures Trading Commission data showed on Friday.
In other metals traded, soldering material tin, untraded at the close, was bid at $23,190 from Friday's close of $22,925 while zinc, used in galvanising, ended at $1,944 from $1,952. Battery material lead closed at $2,181 from $2,198, aluminium ended at $1,929 from $1,947 while stainless-steel ingredient nickel was last bid at $16,975 from $17,145.
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