Base metals fell sharply on Monday as jittery investors reduced their exposure to riskier assets after losses deepened on world stock markets. "Base metals prices continue to bear the brunt of macro-economic concerns and uncertain sentiment," Barclays Capital said in a report.
Copper fell more than 2 percent and nickel more than 4 percent as Asian stocks fell sharply again. Gold hit a six-week low and oil was down by over two dollars a barrel.
Selling was triggered as the Japanese yen strengthened, causing the so-called carry trade to unravel en masse and the impact was felt by commodities. Low interest rates in Japan had encouraged investors to borrow yen and use the money to invest in high-yielding currencies and riskier assets.
Copper futures closed down 2.2 percent at $5,890 a tonne on the London Metal Exchange, after touching $5,796 the lowest since February 21. Prices are down 8 percent from last Monday's 2007 peak of $6,374.
"Nobody really knows what is going to happen after this, so people are pulling out of base metals as well," said Christoph Eibl, head of trading at asset management company Tiberius.
But he said that Tiberius, which has over $1 billion under management, had not reduced its exposure to metals as yet. "We are still quite happy with our positions. We might want to rethink them over the next few days...but the bottom line is that we are not really worried, this is just part of the game."
Barclays Capital said it anticipated support for copper to emerge in line with the strength in China's refined copper imports, up by 86.3 percent year-on-year to 131,851 tonnes in January, and the recent trend of copper stock outflows.
Stocks fell by 125 tonnes to 207,175 in LME warehouses. Nickel fell to a low of $39,100 a tonne, down $2,000 on Friday's evening close, before steadying to close at $39,400, still down 4.1 percent.
Last week nickel hit a new record high at $42,200 and lead a contract high at $1,995. Lead futures ended at $1,815 from $1,855 at the close on Friday. UBS Investment Bank said in a report it expected physical demand to stabilise prices.
"With broad asset markets under pressure, base metals will remain at the mercy of de-risking and carry trade unwinds... physical demand should emerge at these levels to provide a floor especially so in view of the fact that from a fundamental standpoint most metals are still very tight." Mining shares fell sharply in London. Xstrata was down 1.4 percent, Rio Tinto 1.0 percent and Anglo American by 1.73 percent.
Aluminium lost 2.5 percent to $2,680 versus $2,748. Traders said a large number of outstanding contracts to buy three-months aluminium at strikes between $2,900 a tonne and $3,000 could increase the already high levels of volatility in the market. Other metals also eased. Zinc fell 2.1 percent or $70 to $3,250 and tin fell $40 to $13,075.