Copper tumbled to a two-week low on Tuesday as stocks rose, with poor US manufacturing figures the latest bleak data to dampen demand outlook. Copper for three-month delivery on the London Metal Exchange (LME) ended at $3,185 a tonne, the lowest since early February, from $3,330 at the close on Monday.
The metal, used in power and construction, came under pressure after manufacturing production in New York fell to a record low in February, highlighting the country-wide slump. Stocks of copper in LME warehouses rose 3,100 tonnes to 526,425 tonnes, the highest since late 2003 and a gain of more than 50 percent since the start of the year. "We've got to test lower now because the macro news...seems to be getting worse.
Clearly the storm clouds are gathering again," analyst Robin Bhar at Calyon said, citing weak growth data from Japan and Germany in recent sessions. "The optimism that China would come to the rescue, that the stimulus measures would help to revive sentiment...is now beginning to fade," Bhar said. But he added the outlook for base metal prices may improve in the final quarter of this year because governments' stimulus measures will have had some time to take effect.
Prices of most commodities have collapsed since the third quarter of last year. The benchmark Reuters-Jefferies CRB index fell to 6-1/2 year lows on Tuesday. Part of the reason behind commodity price falls was the higher US currency, which when it rises makes metals priced in dollars more expensive for holders of other currencies.
Copper has lost about 60 percent since a record high of $8,940 a tonne in July. "In the short term it's not looking at all positive for any of the metals...Where is the demand?" said Ashok Singhania, director at Simportex. "We might see copper back down to below $3,000 again in the near term." The collapse in copper prices has led China to look at boosting its strategic reserves of the metal.
The State Reserves Bureau (SRB) has contracted to buy the lion's share of a total 300,000 tonnes of imported refined copper cathode it intends to purchase for its strategic reserves. Aluminium prices fell as stocks of the metal used in transport and packaging jumped by more than 10,000 tonnes for the second day in a row to a record above 2.94 million tonnes.
Three-month aluminium was untraded at the close, but bid at $1,330, from $1,348 a tonne at the close on Monday, having earlier fallen to $1,331 - the lowest since late January. The metal has come under pressure from the carnage in the auto sector and poor prospects for future demand, given the recession engulfing the global economy. Key stainless steel ingredient nickel ended at $9,900 a tonne from $10,275 at the close on Monday.
Earlier in the session it touched a low of $9,875, the weakest since December 30. "The weakness in stainless steel production makes substantial gains in nickel prices unlikely in the near term," BNP Paribas said in a note. Zinc closed at $1,108 from $1,129. The outlook for the metal, used to galvanise steel, worsened after news that China, the world top producer of refined zinc, may consider raising the tax on imports to 5 percent from 3 percent to support domestic smelters.
"It is really is very terrible at the moment. In the next few weeks it will be relatively subdued," analyst Michael Widmer at BNP Paribas said. "Once the economy bottoms, which may happen in some countries in 2009, there is a chance demand will be a bit stronger than we've seen during the past few weeks and we could see prices being a bit more supported." Lead closed at $1,109 from $1,145 and tin closed at $10,800 from $11,100.