Copper fell on Wednesday as concerns about spreading European sovereign debt troubles kept investors cautious, although hopes the Federal Reserve could offer more stimulus for the US economy helped support the outlook for demand and limit falls in base metals. Three-month copper on the London Metal Exchange (LME) fell by 0.8 percent to close at $7,545, down from Tuesday's close of $7,609 a tonne.
The metal used in power and construction is down more than 10 percent so far this quarter and is trading around one percent lower for the year to date. Aluminium fell alongside energy prices to a new two-year low. Fears lingered that Spain's debt crisis could spiral out of control, with its soaring borrowing costs showing that a euro zone deal to lend its banks up to 100 billion euros ($126 billion) had not solved its problems or restored investor confidence. It also suggests more aid may be needed to fix its finances.
"The markets are now really very short, but there is a reason for that. Sentiment has really deteriorated about the growth outlook and people now are more concerned about China than they were even a few months ago," analyst Gayle Berry of Barclays Capital said. The US Federal Reserve concludes a two-day policy meeting on Wednesday, and expectations are high that the central bank will extend its bond-buying programme dubbed "Operation Twist" to shore up the economy.
"Should the Fed announce more QE, indications are that gold, silver, Brent and aluminium are likely to move higher with the most certainty," Standard Bank said in a note. Also adding to volatility overnight will be the China HSBC manufacturing flash PMI for May which may give further clarity on the economic health of the world's top metals consumer.
Aluminium fell to its lowest since June 2010 at $1,902 a tonne, tracking copper and energy, and due to an oversupply glut. Producers have kept smelters churning despite the tenuous outlook for global growth due to high demand for their products from financiers who are able to lock in small but low risk profit as set costs for storage and capital costs fall below the aluminium forward price curve.
Daily average primary aluminium output in May dropped to 67,900 tonnes compared with a revised 68,100 in April and 69,900 in May 2011, provisional figures from the International Aluminium Institute (IAI) showed. "The IAI production data for May released today suggests that apparent demand for aluminium was strong in May," an analyst at a US fund said.
Aluminium ended at $1,905 from $1,925.50. In other metals, zinc finished down 1.7 percent at $1,867 a tonne from Tuesday's close of $1,899 while lead lost 1.6 percent to end at $1,882 from Tuesday's close of $1,912.50. Tin finished at $19,200 from Tuesday's close of $19,530 while nickel bucked the trend to close ahead as shorts covered at $17,200 from $17,095 a tonne.