Copper slid more than 2 percent on Wednesday as fears of tighter monetary policy in top metals user China outweighed speculation that tepid US jobs data will deter the Federal Reserve from tapering its stimulus this year. Some of China's big banks were tripling writeoffs on bad loans, according to reports. Short-term Chinese money rates surged on the policy concerns.
China consumes about 40 percent of the world's copper. Benchmark three-month copper on the London Metal Exchange failed to trade in closing open outcry activity, but was last bid 2.2 percent at $7,171 a tonne. This more than cancelled out the previous session's 1.2 percent gain.
Copper hit a one-month high on Tuesday after the first US jobs report since the partial government shutdown suggested that the economy had lost steam, supporting expectations that the Federal Reserve will delay tapering its stimulus programme. Nine of 15 US primary dealers surveyed by Reuters on Tuesday now expect the Fed to begin slowing its $85 billion-a-month bond-buying programme in March.
"The fed tapering (delay), the global economy strengthening slowly - these factors help solidify the (copper price) floor, but what is the bullish trigger to break out of the range? I don't see it," Societe Generale analyst Robin Bhar said. Copper prices hit the highest since September 20 on Tuesday at $7,350 a tonne but have been in a broader $7,000-$7,420 band since early August.
While the prospect of extended US monetary stimulus is supportive for metals, sluggish US growth is doing little to improve copper's demand outlook amid rising supply. The market is seen in a surplus both this year and next. Bond buying helps to prop up commodities by allowing greater liquidity for both business and investors, while weakening the dollar, which makes dollar-priced commodities less expensive for holders of other currencies.
The US currency tentatively steadied near a two-year low versus the euro on Wednesday after its latest slide. In China, a government source said it will retain a ban on overseas commodity exchanges setting up warehouses there, dashing expectations for London Metal Exchange warehouses in the newly launched Shanghai free trade zone.
Nickel prices also backtracked after surging on Tuesday to the highest levels in about two months on worries about a planned export ban in Indonesia next year. Commerzbank said those concerns were overblown and that any shortfall from Indonesia could be made up from rival producers such as Philippines and from ample inventories. "We therefore see only limited upside potential for the nickel price," it said in a note.
LME nickel closed down 1.7 percent at $14,595 a tonne after gaining 3.4 percent on Tuesday and touching a high of $14,880. Packaging metal aluminium fell 1.9 percent to $1,844 a tonne, having hit its highest since late August on Tuesday. Shares of top aluminium producer Alcoa Inc made their biggest one-day move in nearly two years on Tuesday. While the reasons were unclear, there is some speculation that the prospect of delayed tapering of US monetary stimulus has whetted appetite for aluminium financing. Zinc finished 1.5 percent lower at $1,932 a tonne and tin shed 1.7 percent to close at $22,800 a tonne. Lead failed to trade on the kerb and was last bid at $2,172.50, down 1.5 percent.
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