Copper gained more than 2 percent in the last trading day of 2011 but was on track for its first annual decline in three years as the eurozone debt crisis and an economic slowdown in top metals consumer China hurt prospects for demand growth.
Benchmark copper on the London Metals Exchange rose by 2.4 percent on Friday to end at $7,600 a tonne from $7,425 at the close on Thursday, bouncing back after two losing sessions as signs of improvement in the US economy offset worries about the eurozone and encouraged investors to increase bets on riskier assets. Prices were down 21 percent for the year, however, following a 30 percent increase in 2010 and a 140 percent jump in 2009, boosted by surging demand from China's manufacturers. China accounts for 40 percent of the world's refined copper consumption.
"The single major factor behind this is the unfolding of the euro zone crisis, which had some direct and indirect impacts on metals," said BNP Paribas analyst Stephen Briggs, pointing to a weaker euro and worries about economic contraction as factors stemming from the euro debt situation that affected metals prices. "Another key factor was the economic slowdown in China ... There is still a risk of hard landing, and perhaps the market is concerned about that," he added.
China's factory sector shrank in December as demand at home and abroad slackened, a purchasing managers' survey showed on Friday. Copper has lost about a quarter of its value since it hit an all-time high of $10,190 a tonne in February. China, with an export-oriented economy, has suffered heavily due to the debt crisis, which has hit economic growth in developed regions and tempered demand for manufactured goods.
The 19-commodity Thomson Reuters-Jefferies CRB index has lost 8.5 percent this year. Destocking in China this year of a wide variety of metals took by surprise most market players and analysts, who last year had forecast much higher metals prices for 2011. "This time last year analysts would have expected much higher prices than we have now ... As much as each of the metals differs greatly, one thing people didn't expect last year was the extent of the Chinese destocking," Briggs said. Aluminium was on track for a 18 percent yearly decline, zinc for a 25 percent drop and lead for a 20 percent fall.
Tin, on course for a 28 percent tumble, was the worst performing metal of the year in terms of returns. Nickel was headed for a 25 percent decline. Aluminium closed at $2,020 a tonne from a last bid at $1,991 on Thursday, zinc at $1,845 from $1,832 and battery material lead at $2,034 from $1,999. Tin finished at $19,200 from $18,800 Thursday's close and nickel at $18,650 from $18,050.