Copper tumbled almost 4 percent on Tuesday on profit-taking spurred by a firmer dollar and as investors worried about the impact of a planned $700-billion US financial bailout. Copper for delivery in three months on the London Metal Exchange closed at $6,980 per tonne, after hitting a session low of $6,970 and slipping from Monday's high of $7,333, its highest level since September 4.
"All base metals are moving in conjunction at the moment," said analyst Gayle Berry at Barclays Capital. "What we see is a broad-based movement in prices in relation to broader macroeconomic trends." Commodity prices have come under pressure in the past few weeks as investors, desperate for cash, sold off their positions as the global financial turmoil deepened.
US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urged Congress to act swiftly to put in place a $700 billion financial system bailout, warning delay would put the economy at risk. The dollar moved in erratic trade, hitting session highs versus the yen and analysts said a possible turnaround in the US currency could further dampen prospects for metals.
"If the markets get a sense that Congress is close to 'sealing a deal', we could see a substantial reversal in the dollar and a subsequent easing in metal prices," MF Global analyst Edward Meir said in a note. "Whether the dollar's gains will last given the enormous deficits that are being generated, remains an open equation, but for now, the path of least resistance in commodities remains higher still."
Copper is down about 20 percent compared to its record high of $8,940 per tonne hit in April, as lack of demand from China, coupled with global financial market turmoil have prompted investors to dump their positions. Some analysts have said a nearly 8,000-tonne fall in LME copper inventories, primarily from the Gwangyang and Busan warehouses in Korea, could suggest demand from China, the world's largest importer and consumer of copper, was starting to pick up.
Chief Investment Strategist at Diapason, Sean Corrigan, was not convinced that fundamentals were supportive. "We have residential construction coming to a halt in the Western hemisphere, commercial construction is beginning to follow, we have a slowdown in Chinese building ... news of slowing car sales just about everywhere, including China - What are we going to use all these base metals for?" he said.
Euro zone services and manufacturing activity contracted for a fourth consecutive month in September, a key survey showed, pointing to an economy at best in stagnation. A 3,050-tonne rise in aluminium stocks to 1.36 million - their highest level since March 2004 and enough for 13 days of world consumption - also weighed on the metal.
Aluminium, used in transport, packaging and power, was down $40 at $2,508. On Monday, it hit a one-week high of $2,577. Lead was at $2,000, up from Monday's close of $1,990. It hit a high of $2,020 in earlier trade, its highest level since September 4. Tin fell $200 to $17,400 while nickel closed down $200 to $17,200. Zinc dropped $70 to $1,770, after hitting a one-week high of $1,850 in earlier trade.