Copper fell on Friday as the dollar rose and investors grew more cautious due to worries about US budget problems and the euro zone debt crisis, but losses were limited by signs the slowdown in top metals consumer China might have bottomed out. Three-month copper on the London Metal Exchange closed at $7,605 a tonne, down from $7,639.50 at Thursday's close.
"Equities markets are weak in China, Europe and US and the euro is also under pressure, and those exogenous factors are really weighing on the base metals," Standard Bank analyst Leon Westgate said. China, the biggest consumer of copper, announced at the weekend that its economy was turning the corner and was likely to meet its growth target for the year. A pick-up in growth from China would provide welcome news in the West, where industrialised economies are struggling following the debts built up during the global financial crisis. But bulging metal inventories in China, expectations of a modest rise at best in demand next year and improving supply signal a slow recovery.
"The markets are coming to terms with the fact that it is going to be a steady and slower recovery in growth (in China) compared to what we have seen previously," said Barclays analyst Gayle Berry. "The inventory overhang there is going to delay the feeling of the demand recovery. Even though we have started to see some improvement in economic data, it is going to be a delayed effect on demand as those inventories are being drawn down."
The country's state stockpiler this week also bought aluminium and zinc from domestic smelters in a bid to aid local industry, in a move that analysts say will have little impact on a market dogged by oversupply but that may boost sentiment. In the United States, Federal Reserve Chairman Ben Bernanke highlighted lingering weakness in the housing market, a key component of the economic recovery. Construction is a significant market for copper with a little over 400 lb of copper used in a typical US house.
Investors were also nervous about the start of budget talks in the United States, fearing a stand-off in negotiations to avoid some of the $600 billion of spending cuts and tax hikes that are set to kick in January 1.
The risk-off mood prompted safe-haven flows into the dollar, which rose to its highest in two months against a basket of currencies. A stronger dollar makes commodities priced in the currency more expensive for holders of other currencies. The euro fell versus the dollar on recent dismal economic data out of the euro zone.
In other metals, three-month aluminium closed at $1,951 per tonne from $1,964 at the close on Thursday, zinc finished at $1,920 a tonne from $1,955 and lead at $2,150 from $2,199. Tin closed at $20,400 from $20,475 and stainless steel material nickel at $15,955 from $15,910. "The metals complex looks to be comfortable, though sitting in between a few of the near-term moving averages," RBC said in a research note.