Copper, zinc and nickel hit one-week lows on Thursday as bearish speculators shrugged off a retreat in the dollar and instead focused on weaker demand in top metals user China. The dollar index surged on Wednesday to its highest levels since 2003, after the head of the US Federal Reserve hinted interest rates would soon rise. But the currency reversed on Thursday after the European Central Bank cut deposit rates by less than expected.
A weaker dollar usually supports commodities priced in the US currency, making them cheaper for buyers outside the United States. "I don't think that metal prices really care about what the ECB has been doing today. They're still playing the China card, that's the main factor still weighing on prices, and there still seems to be speculative interest in driving prices even lower," Commerzbank analyst Daniel Briesemann in Frankfurt said.
"The negative economic data coming from China doesn't seem to stop and we've also got disappointing data from the US as well. Those are the two most important consumers of metals," Briesemann added. Three-month copper on the London Metal Exchange closed down 0.1 percent to $4,556 a tonne, having recovered from its lowest in a week at $4,513. Prices are mired near a 6-1/2 year trough of $4,443.50 hit on November 23.
"Copper isn't in a particularly massive surplus, aggressively shorting (it) from here is not such a great strategy," SP Angel analyst Carole Ferguson said. Metals investors remain concerned that the Chinese economy is diverging, with services steadying but industrial demand slowing, evidenced by decade-low spot iron ore prices in China and record-low Shanghai steel futures.
"(China's) private sector services PMI showed the industry continue to expand in November, though at a reduced pace. This compares to a challenging situation in the manufacturing sector that remains in a contractionary phase," an SP Angel note said. Stainless steel ingredient nickel fell 1.5 percent to end at $8,850 a tonne after touching a one-week low of $8,670, reflecting these concerns. Nickel is down more than 40 percent this year, the worst-performing LME base metal, and slumped last week to $8,145, its lowest in more than a decade.
Zinc closed 1.7 percent weaker at $1,522 a tonne, the lowest in over a week, and lead dipped 0.4 percent to $1,650. Aluminium fell 0.8 percent to finish at $1,473 after touching a 6-1/2 year low last week, while tin ended 1.5 percent down at $14,800.
Helen Lau of Argonaut Securities in Hong Kong voiced concern about miners cutting costs rather than output in the face of sliding prices. "It's not positive," she said. "Prices may trend lower for some time to come."