Copper futures fell 3.2 percent on Monday under pressure from gains in the dollar, rising London Metal Exchange stocks and worries about demand. Zinc eased but Hurricane Gustav was seen as a potential threat to LME warehouses, analysts said. "The stronger dollar is pulling commodities lower," said analyst John Meyer at Fairfax Investment Bank.
"We are looking for some recovery in base metal markets although maybe not in the next couple of days, particularly with inventory levels rising," he said. Volumes were low with the US market shut for Labour Day. LME three-month copper closed at $7,305 per tonne from $7,510 at the close on Friday. The metal, used in power cables and construction earlier fell as low as $7,268, its lowest level since August 15.
Nickel fell 5.2 percent to a two-week low of $19,200 against Friday's close of $20,250. Stocks rose 1,206 tonnes to a four-month high of 48,228 and the metal is down 24 percent this year as demand from stainless steel producers, accounting for two-thirds of nickel off-take, has fallen short of expectations. The dollar rose to its highest this year against a basket of major currencies, boosted by a sharp fall in oil prices.
A firm US currency makes dollar-priced metals more expensive for holders of other currencies. LME copper stocks are at their highest since February, at 173,725 tonnes, although the latest release from the International Copper Study Group said the copper market was in deficit by 155,000 tonnes in the first five months of the year.
Rising stocks have pulled down the backwardation - the premium for cash material over three-months prices - to $27 per tonne. On July 17, the premium hit the year's high, at $241, with a dominant position capturing most of the market. Copper's value has fallen 8 percent in the past month and in the near term there is a risk of further price correction as global economic and demand growth continue to slow, RBC Capital Markets said in a report.
Three-month aluminium fell to 2,705 from $2,714 a tonne. Aluminium has been forecast to trade at an average of $1.30 a pound ($2,866 a tonne) in 2008 and copper is seen at $3.55/lb ($7,826/t), falling to $3.25 ($7,165/t) in 2009, RBC said. The 2008 forecast for lead was revised down from the previous quarter at $1.05 per pound or $2,315 per tonne, nickel was cut to $11/lb ($24,251/t) and zinc was seen lower at $0.95/lb ($2,094/t).
Tin, LME's best performer this year with a gain of 23 percent, fell as much as 5.5 percent to $18,900 - the lowest since August 18. It closed at $18,925 from $20,000 on Friday. The market cast a worried eye over weather forecasts, which suggested Hurricane Gustav could hit New Orleans, where some LME warehouses are located. Zinc has risen more than 10 percent since dipping to a 33-month low in mid-August, but the metal mainly used to galvanise steel is down by about 25 percent this year.
With almost 40 percent, or 61,000 tonnes, of world LME zinc stocks in New Orleans, some traders feared a repeat of Hurricane Katrina in September 2005, which cut off access to about one-half of the available LME stock of zinc for months. "This location could trigger some short-covering if the LME warehouses are flooded," said analyst John Reade at UBS.
When Katrina struck, LME zinc was trading between $1,300 and $1,400 a tonne. It doubled in price by May 2006. New Orleans also houses about 13,000 tonnes of copper. Zinc was last quoted at $1,775/1,780 a tonne from $1,811 a tonne, while lead closed at $1,935 versus $1,980 at Friday's close.