Copper sank on Friday as a stronger dollar weighed and China's move to tighten monetary policy sparked worries demand from the world's top metals consumer may stutter. Benchmark copper on the London Metal Exchange ended at $6,810 a tonne from $6,940 at the close on Thursday when the metal used in power and construction hit a two-week high of $6,970 a tonne.
In a bid to cool the country's rapidly growing economy and combat inflation, China's central bank surprised markets by raising banks' reserve requirement 50 basis points effective on February 25, the second such increase this year.
"The market fears the normalisation of monetary policy will choke off growth in China and demand for base metals," said Peter Fertig, analyst at Quantitative Commodity Research. On the supply side, LME copper stocks at one-year highs above 547,000 tonnes weighed on prices, but against that, cancelled warrants - material earmarked for delivery - doubled to above 12,000 tonnes on Thursday from Wednesday.
"(Cancelled warrants) mostly in Korea are heading for China," a trader said. "It may be slow until after the Chinese holiday, but keep an eye on that number." Longer term, analysts expect to see higher copper prices because of strong growth and demand from China.
"Copper is still our favourite base metal ... We're still bullish, we believe in Chinese growth," said Colin Hamilton, analyst at Macquarie. Copper prices have fallen more than 8 percent this year, weighed by worries over monetary policy tightening in China, sovereign debt in Europe and plans for sweeping restrictions on US banks. But in terms of China, analysts say monetary policy is still loose and worries about significant tightening are premature, given expectations of 10 percent gross domestic product growth this year.
Aluminium used in transport and packaging hit $2,080 a tonne, its highest since February 4. It ended at $2,055 a tonne from $2,065 on Thursday. Zinc finished at $2,170 from $2,180, lead at $2,133 from $2,125, tin was last bid at $16,200 from $16,175, and nickel ended at $18,550 from $18,450, having earlier hit $18,890, its highest since late January.