Base metals fell to multi-year lows on Monday on worries that a surge in the dollar could deter producers from making supply cuts in a market battling poor demand, especially in top user China. London nickel slid more than 6 percent to its lowest since 2003 and copper fell 3 percent to its cheapest in more than six years. Lead touched its lowest since 2010, while aluminium hit the weakest since 2009.
The dollar index hit an eight-month high, making dollar-priced metals costlier for non-US investors, ahead of an expected US interest rate hike in December, which could further boost the currency. Also of concern was the impact of the greenback's surge on producer output. "In the context of a market waiting for supply-side cuts, a stronger dollar is only going to weigh on the cost curve and constrain the pace at which cutbacks are made," said Nicholas Snowdon, analyst at Standard Chartered.
He added that Chinese funds continue to sell metals aggressively on signs of poor demand from downstream sectors that consume metals, and fears that consumption will sag further ahead of the Lunar New Year. Three-month copper on the London Metal Exchange hit a low of $4,443.50 a tonne before recovering to end at $4,490, down 2 percent. Aluminium hit a low of $1,432.50 before ending down 0.3 percent at $1,445.50, while lead hit a low of $1,551.50 before ending down 1.2 percent at $1,575.
Metals tied to China's huge steel sector, such as zinc and nickel, have been especially hard hit. China's apparent crude steel consumption has continued to shrink this year, after falling in 2014 for the first time in more than a decade. LME nickel fell as far as $8,175 before ending down 5 percent at $8,300, while zinc hit a session low of $1,498, having dropped to $1,487.50 last week for the first time since 2009. It ended at $1,546, down 0.9 percent.
Nickel plunged on Monday despite data showing China's October imports surged 651 percent year-on-year, with analysts pointing to fears that the metal is going into stockpiles and not being consumed. A London-based trader said chart support for nickel was between $7,600 and $8,400, and until there were signs of an uptick in demand the metal would likely trade within that range.
Zinc likewise was unable to gain any traction despite China's October imports rising 189 percent year-on-year, and despite news last Friday that top Chinese smelters agreed to cut output next year by 500,000 tonnes. "The global zinc market is very likely to show a huge supply deficit next year. Even though the price is clearly not finding support from this in the short term, it should make significant gains in the medium to long term," Commerzbank said in a note. Tin ended down 2 percent at $14,355.
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