Copper steadied on Monday as a weaker dollar and investors seeking safety in tangible assets helped to support prices, but concerns remained about the Dubai debt crisis, weak demand and rising stocks. Three-month copper on the London Metal Exchange closed at $6,930 a tonne from $6,855 on Friday, when the metal used in power and construction fell to a two-week low of $6,620 a tonne.
Dubai raised fears of a second bout of financial turmoil last week when it asked for a six-month repayment freeze on debt issued by Dubai World and its unit Nakheel.
On Monday, the Dubai government disclaimed responsibility for the debts of its Dubai World conglomerate. "Everything fell off on Friday," said David Wilson, director of metals research, Societe Generale. "There is still potentially a big downside to (Dubai). It's not very positive for investment in the Middle East if government owned organisations are not backed by their owners." Last year's financial crisis, which escalated after the collapse of Lehman Brothers, saw copper prices crash below $3,000 a tonne in December 2008.
Copper prices have more than doubled this year and last week they rose over $7,000 a tonne, the highest since September 2008.
The large amounts of money pumped into the economy by governments around the world and low interest rates have raised the spectre of spiralling inflation in the years to come. Investors seeking to protect their assets have piled into commodities, which also become cheaper when the dollar falls. "Liquidity floating around the system makes it difficult for investors not to diversify into hard assets," Eugen Weinberg, an analyst at Commerzbank, said.
Also weighing on industrial metals are high inventories. Stocks of copper in LME warehouses at above 438,000 tonnes are up 70 percent since the middle of July and the highest since April, while stocks of aluminium at near 4.6 million tonnes are near the record high of 4.269 million tonnes seen in September. But about 70 percent of aluminium stocks are said to be tied up until next May in financing deals, which means they are not available to the market, and that is one reason why aluminium prices are up more than 30 percent since January.
Rising prices have triggered a restart of smelting capacity, especially in China, the world's largest producer. Aluminium ended at $2,055 a tonne from $2,016 on Friday, tin closed at $15,200 from $14,895 and nickel at $16,400 from $16,085 a tonne on Friday when it touched $15,751, the lowest since July 22. Stocks of nickel at above 137,000 tonnes are the highest since February 1995 and are also undermining prices of the metal used to make stainless steel. Battery material lead closed at $2,345 from Friday's last bid at $2,290 and zinc, used to galvanise steel at $2,322 from $2,230.