Copper fell on Monday as more data showed a deepening global recession, but prices in Shanghai looked supported by hopes the Chinese government would keep buying metals to help local smelters ride out slumping demand. The US economy contracted in the fourth quarter by the most since early 1982, shrinking by a much worse-than-expected 6.2 percent as exports dived and consumer spending fell, data released on Friday show.
The US data indicates that "global demand remains in a very bad shape," commodity analyst Judy Zhu at Standard Chartered Bank said."Fundamentally, the situation is not good. There's still a lot of supply in the market," said a metals trader in Shanghai.
Shanghai copper for delivery in May fell to as low as 27,300 yuan ($3,991) a tonne, before paring losses to close at 27,630 yuan, down 220 yuan. Copper futures on the London Metal Exchange slid 1.7 percent to $3,390 a tonne by 0710 GMT, adding to Friday's 1.5 percent decline.
The firmer dollar also weighed on prices, since a stronger US currency makes metals priced in dollars costlier for holders of other currencies. But expectations China would continue buying metals to aid Chinese smelters should support metals prices in Shanghai.
China's State Reserves Bureau (SRB) may buy 10,000 to 20,000 tonnes of refined nickel from local smelters to boost its reserves, industry sources said on Monday.
The SRB, the commodity buyer for China, which consumes nearly a quarter of the world's nickel output, already bought 590,000 tonnes of primary aluminium and 200,000 tonnes of refined zinc from December to February from Chinese smelters which are suffering from weak global demand.
"The market has a very big surplus and smelters need this support from government buying. If we consider how severe the surplus is, I have a feeling that the buying is not yet enough," said Standard Chartered's Zhu. China is the world's biggest consumer of industrial metals and its economy needs to show better growth before metal prices can post a significant turnaround.
"Chinese demand is slumping quickly in the past few months especially since the fourth quarter and so far we haven't got any solid data indicating that demand is rebounding," added Zhu. And more companies are trimming operations to survive the downturn. Anglo American is cutting more than 10 percent of its workforce of around 5,000 at Australian coal mines to reduce costs.