Copper dropped seven percent at one stage on the London Metal Exchange (LME) as investors pulled out of markets vulnerable to any economic slowdown, traders said on Tuesday. However, traders said metals were overdue a correction.
"Long liquidation across financial markets is to be expected after this spectacular first quarter and, for the bulls, this is just a healthy correction," an LME trader said.
Copper closed the kerb at $6,570 a tonne, over 25 percent below its peak of $8,800 and down 6.4 percent from Monday's kerb close of $7,020. A similar weakening picture was seen across the complex, in particular zinc and nickel, which tumbled below important chart levels as risk-averse speculators sold long positions.
Copper, nickel and zinc, all at record highs a month ago, fell to their lowest since mid-April.
Zinc closed at $2,950 against $3,235. Zinc touched an intra-day low of 2,930, down 9.4 percent and 26 percent lower since its peak of $3,970 in mid-May. Nickel ended at $17,400, falling 8.9 percent against Monday's close of $19,100. At one point nickel fell 9.2 percent to touch $17,350. Precious metals also plummeted on a firm dollar and weak oil.
Riskier assets were now being unloaded after more warnings about higher inflation and slowing economic growth, offsetting problems with supply, traders said.
A Barclays Capital report said nervous trading prompted by an uncertain macro-economic environment was weighing on sentiment, while positive supply and demand fundamentals remained intact.
"Despite these concerns, we are becoming more, not less, convinced of the strength of fundamental support in many commodity markets," the report said. The supply picture stayed severely constrained and LME inventories continued to tighten. Copper stocks fell 6,450 tonnes to 105,500 on Tuesday.
Anglo-Australian miner Rio Tinto sees the recent decline in metals prices as a market correction, not the reversal of what it believes is a long-term upward trend, its chief executive said on Tuesday.
US primary aluminium production was down 8.2 percent in May at an annual rate of 2,310,956 tonnes, from 2,518,123 tonnes in May 2005, the Aluminium Association said in its latest monthly report. Aluminium closed at $2,455, a $45 loss, and tin dropped to $7,700 from $7,900/7,975. Lead was at $995 from $1,015/1,020.