Base metals prices fell sharply on the London Metal Exchange on Friday on fund liquidation after a report of heavy losses at a hedge fund, dealers said. "The market is collapsing," a European trader said. Zinc fell to a seven-month low at $2,990 a tonne at one point and copper touched $5,250, down 6.3 percent.
Lower metals prices weighed on mining shares on the London Stock Exchange, with Rio Tinto, Xstrata and Vedanta among the 10 biggest losers. Once base metals prices hit specific chart levels the fall for most accelerated. "Fund liquidation...a lot of stops triggered - a lot of the stuff on the back of the Red Kite news," the trader said.
Hedge fund Red Kite, which posted strong gains in 2006, has suffered a roughly 20 percent loss in the first days of January and is now trying to stall investors who want to pull money out, The Wall Street Journal reported. Benchmark copper for delivery in three months closed at $5,330, down 4.8 percent from Thursday's close of $5,600.
Rising LME stocks also dampened sentiment, with stocks up 127 percent over the last year and up nearly 5,000 tonnes this week. Gold fell by 2 percent to $643.10 an ounce as the dollar rebounded after an initial drop following a report showing softer-than-expected January US payrolls growth. Analyst Michael Widmer at Calyon said the markets were influenced by data from the United States this week.
The global indicator produced by J.P. Morgan with research and supply management organisations fell to 52.4 in January - its lowest since August 2005 - from 53.4 in December. Global factory output growth also sank to its lowest in three and a half years to 53.0 from 54.3.
Copper is down more than 12 percent since the start of the year and around $3,000 below the peak hit in May last year. Goldman Sachs said in a report copper's performance reinforced the investment bank's view of a slowdown in global economic growth and so demand for the industrial metals.
The bank has $5,500 as an end-year copper price target, it said, adding: "Uwe believe that much of the downside in metals prices from an economic slowdown has been priced in." Zinc ended down at $3,085 versus $3,390 after falling 11.8 percent at one point to $2,990.
Prices have tumbled by more than 25 percent since the start of the year on worries about a looming surplus, China turning into a net exporter of zinc in 2006 and a slowdown of demand in Europe and the United States.
In previous months, some of the investment funds that play the commodities markets have used the first few days of the month to add more metals to their portfolios, but that pattern has become less pronounced recently.
Aluminium was down $33 or 1.2 percent at $2,720. Lead was down $35 at $1,630 and tin was last indicated at $11,675/11,700 versus $11,900 on Thursday. The only metal closing in positive terrain was steel-making input nickel, up $550 or 1.5 percent at $37,400 after inventories of metal, already low, fell another 144 tonnes to 3,222. "General sentiment remains positive because of the current low stock levels," LME broker Sucden said in a market report.