Copper eased on Monday by less than half a percent as a lower dollar and a tight supply outlook helped to shield it from risk-averse investors concerned over the worsening credit outlook for the United States. Aluminium touched $2,624, its highest since June 15, on technical buying and as a looming power crunch in China threatened to curb output of the energy-intensive metal.
Benchmark copper on the London Metal Exchange traded at $9,655 a tonne at 1603 GMT, down 0.2 percent from $9,675 at the close on Friday. The metal used in power and construction hit its highest since April 11 at $9,873.50 one week ago. Trading volumes stagnated on Monday as markets awaited the results of a deadline for US lawmakers to sort out a debt ceiling plan.
"It's a failure in the US of the parties to reach agreement on raising the country's debt limit," analyst Daniel Briesemann of Commerzbank said. "Also I think prices are being affected by macro indicators, or negative sentiment regarding some data to be published in the US this week - GDP and consumer confidence," he added.
Prospects of a budget breakthrough that would allow the United States to raise its debt ceiling and avoid default on its bond payments faded over the weekend as lawmakers missed a self-imposed deadline to produce a deal. This failure has driven down the dollar against other major currencies such as the yen and Swiss franc. A falling US currency makes commodities priced in dollars cheaper for holders of other currencies.
The US is due to report consumer confidence for July on Tuesday and its advance gross domestic product data on Friday. Traders said the eurozone debt crisis is also weighing on financial and commodity markets.
The spotlight is still on Greece's sovereign debt, which ratings agency Moody's cut by three notches on Monday to Ca, just one notch above default. "Both the US and the eurozone are important in terms of sentiment, but really for demand we should be looking at China," a LME copper trader said. China is the world's largest consumer of copper, accounting for nearly 40 percent of global demand estimated at around 21 million tonnes this year.
The absence from the international market of Chinese consumers, who are unwilling to buy at high prices and are drawing on their stocks instead, has kept copper prices subdued since it hit a record high of $10,190 a tonne on February 15. But a tight supply outlook and imminent return of Chinese buyers suggests copper will target new records before the year is out, Macquarie said in a note.
"With mine supply growth assumptions at risk, physical inventories depleting and Chinese sentiment likely nearing bottom, we would reiterate our expectation that copper pushes back toward $5/lb in a three- to six-month view," it said. In a sign of supply problems, a strike at the world's biggest copper mine, Chile's Escondida, entered a fourth day on Monday with no sign of a solution.
Three-month zinc ended at $2,470 a tonne, down from $2,498 at Friday's close, while lead closed at $2,675 from $2,691, tin finished at $28,150 from $28,250. Nickel ended at $23,800 from $23,950. Aluminium, which is used in transport and packaging, closed higher at $2,620 a tonne from $2,591 on Friday. Stocks of aluminium in LME-registered warehouses at more than 4.38 million tonnes are down more than 34,000 tonnes since July 18.
A spike in cancelled warrants - the metal tagged for removal from warehouses - was not indicative of consumer demand, a London physical metal trader said, and was a result of metal being shuffled among warehouses. "At the moment there's hardly any big activity that would explain these cancelled warrants. I think it's rather movement between warehouses," he said. "There are certain rumours about power shutdowns in China. In general, that is holding the ally (aluminium) market at the moment." China is the world's top producer of aluminium.