Copper fell near a three-week low on Wednesday as Europe's debt crisis remained unresolved, denting demand prospects, and after the US Federal Reserve decided to do nothing new to prop up growth. Risk aversion also pushed up the US dollar, generally perceived as a safe-haven asset, which put additional pressure on industrial metals prices.
Benchmark copper fell more than 5 percent to $7,176 a tonne, its weakest since November 25. It later closed at $7,210 versus a close at $7,600 a tonne on Tuesday. Tin on the London Metal Exchange fell 5 percent to a session low of $18,525 a tonne, its lowest since late September, and aluminium fell more than 2 percent to a low of $1,955.75, its weakest since late July 2010.
"It's very much a risk-off day. There are growing concerns about the outlook for Europe and some concerns also about China's ability to steer its way through the world-wide difficulties," said BNP Paribas analyst Stephen Briggs. Copper fell sharply in the 2008 financial crisis because it was so far ahead of production costs. It has lost almost a fourth of its value so far this year, after gaining over the last two years.
"The market remains substantially sceptical after the EU leaders' manoeuvre last Friday, and it is still unclear whether the rating agencies will downgrade European countries, and this is putting some pressure on metals," said Gianclaudio Torlizzi, a partner at metals consultancy T-Commodity. Top copper consumer China pledged to guarantee economic growth in the face of an "extremely grim" outlook for the global economy in 2012. Analysts expect its growth to slip below 9 percent next year for the first time in over a decade.
Freeport Indonesia confirmed it had agreed on a pay deal with workers at its Grasberg mine to end a three-month dispute that has paralysed output at the world's second-biggest copper mine. Copper production has been heavily disrupted this year by long strikes at some of the world's biggest mines including Freeport's mines in Indonesia and Peru.
Physical buyers in China were attracted by lower copper prices in November, when Chinese imports reached their highest level since March, preliminary data from China's General Administration of Customs showed on Saturday. Underlining increased physical demand, inventories of copper in LME-monitored warehouses fell to 382,150 tonnes, their lowest since the end of January, latest data showed.
Inventories of aluminium, on the other hand, rose to a record 4.8 million tonnes and are likely to breach the 5 million tonnes level in the next few days as a souring economic outlook has curbed demand and a European dollar crunch has intensified the need for cash ahead of the year end.
This may be counterbalanced by an Asian import rise. China's primary aluminium imports are likely to rise until March, with investors and merchants ramping up purchases after an arbitrage window between the LME and Shanghai opened for the first time since 2009, traders said.
Aluminium ended at $1,962 a tonne from a $2,000 close on Tuesday. Zinc, used to galvanise steel, ended down more than 3 percent to near a three-week low at $1,845 from a $1,912 close, and battery material lead fell more than 4 percent to close at $1,998 from $2,085. Tin ended at $18,525 a tonne, down 5 percent from a last bid of $19,500, and stainless steel ingredient nickel fell nearly 5 percent to end at $17,400 a tonne from a last bid of $18,300.