Copper fell 3.5 percent on Thursday as warehouse stocks rose and most industrial metals sank as dismal economic data from the United States and Europe added to evidence of ever weaker demand. The world's fourth-biggest diversified miner Rio Tinto's fourth-quarter production in key commodities such as copper and iron ore have dropped with the global economic downturn crimping sales.
On the London Metal Exchange, copper for three-months delivery dipped to a low of $3,171 a tonne, down 3.5 percent, before rising to a last quote of $3,275/3,280 a tonne at the close versus $3,285/3,286 on Wednesday, when it shed as much as 4.9 percent. Analysts said short covering and index reweighting could be behind the brief recovery as Thursday was the last day of the Dow-Jones-AIG index, a major commodity index, rebalancing its positions.
But for the near-term prospects the price outlook remained grim. "The sentiment is still very bearish across the board," Sudakshina Unnikrishnan, analyst at Barclays Capital, said. "We've seen big builds in inventory levels in copper, aluminium and nickel," she said. "Inventory rise is really reflecting pretty weak physical demand conditions. It is not going away from the market and could remain in the next 3-6 months," she said.
Copper - often seen as a key gauge for real economic activity - is down more than 60 percent since hitting a record of $8,940 a tonne in July and not too far off last year's low of $2,825 on December 24. Shanghai copper stocks, though up from recent lows, are still just enough for 2-1/2 days of domestic consumption, whereas LME stocks, at a five-year high of 387,325 tonnes, are enough to supply the world for more than a week.
The grim outlook for the world economy, and the effect on demand for metals, was driven home again after US jobless claims rose more than expected, suggesting the year-long recession was deepening. As recession spreads the European Central Bank cut its benchmark interest rate by 50 basis points to 2.0 percent on Thursday, matching its lowest-ever rate.
The economic slowdown prompted investment bank Credit Suisse to lower its 2009 and 2010 copper price forecasts by 30 percent and 25 percent respectively, it said in a report. "The changes reflect lower global GDP growth forecasts, a marked slowdown in China's copper consumption growth and modest copper market surpluses in the near term," it said.
As demand for copper tumbles across the world and Chinese smelters reduce capacity, giving smelters the upper hand in smelting fee negotiations as copper concentrates supplies are plentiful, more production cuts are expected. Japan's Pan Pacific Copper Co Ltd settled copper processing fees for 2009 up roughly 70 percent from 2008, a company official at Nippon Mining & Metals Co Ltd, its parent company, said on Thursday.
LME aluminium fell $17 to $1,478 a tonne. Stocks of the light metal rose 33,600 tonnes to 2.48 million tonnes, the highest level since mid-1994. Zinc was flat at $1,265 per tonne, lead rose $24 to $1,154, while nickel was down $155 to $10,695. Tin traded at $11,005 a tonne against Wednesday's $11,250.