Industrial metals in Shanghai pared losses on Thursday's close after copper fell by its 4 percent daily limit and zinc plunged on fears of a slowdown in the US economy. The Shanghai Futures Exchange had prepared itself for a bloodbath in zinc, raising the daily trading limit to 13 percent and lifting margin requirements on some zinc contracts.
January and February zinc contracts restarted on Thursday after a one-day suspension following three successive limit-down sessions. The January Shanghai zinc contract plunged 11 percent when it opened. By the close, it had pared losses to trade at 17,870 yuan ($2,412) a tonne, down nearly 2 percent or 335 yuan at Thursday's.
Benchmark zinc futures on the London Metal Exchange reversed losses on Thursday's trade, gaining $30 to $2,250 after sliding 6 percent on Wednesday's session. Analyst Yang Jun of China Futures said zinc prices, nearing domestic production costs, were unlikely to fall much further, but added: "I do not think a rebound will be strong, as there are still some uncertainties in the market."
Clouds continued to gather over the outlook of the US economy after comments by Treasury Secretary Henry Paulson to the Wall Street Journal that he expected mortgage defaults to rise next year.
That sent equities markets lower. The Dow was down 1.6 percent on Wednesday. Sydney's S&P/ASX 200 fell 0.8 percent and the Shanghai composite index was down 4.4 percent on Thursday.
"In the past few weeks, metals have followed stock markets. The US looks like it will slow and in China the government is restricting bank loams so there is very little incentive to buy metals," a dealer in Shanghai said. "Physical markets are weak and from the financial side the credit problems mean the international banks are running shy of risk."
Fresh weakness in the dollar, hitting new lows against the euro and other currencies was not sufficient to coax buying interest from holders of other currencies. "Sometimes the market follows the dollar but for the moment base metals are more sensitive to the reason why the dollar is lower the weak macroeconomic outlook for the United States," the trader said.
The February copper contract on the Shanghai Futures Exchange hit its daily 4 percent downside limit at the open before bouncing to 54,450 yuan a tonne, up 2.4 percent or 1,250 yuan. The market has fallen by about a quarter since October.