Prices of industrial metals fell on Tuesday as global stock markets plunged for a fourth day, prompting investors to cut exposure to riskier assets and strengthening the dollar. Global shares have lost $4 trillion in value from record highs in late January, while the dollar, seen as a safer asset, has risen from three-year lows, making metals more expensive for holders of other currencies.
"We read this as a stock-driven sell-off," ING metals analyst Oliver Nugent said. "It's market contagion. There's nothing really happening on the fundamentals front." Metals remained near multi-year highs.
Benchmark copper on the London Metal Exchange closed down 1.3 percent at $7,076 a tonne, still close to a four-year high of $7,312.50 hit in December. Analysts at Citibank said the dip in prices could be a buying opportunity, given a pick-up in global manufacturing and supply shortfalls in some metals.
"The recent sell-off in rates and equities, and a spike in VIX (a volatility index) present an opportunity to rotate into industrial metals," they said in a report. "We recommend asset managers raise their exposure to industrial metals over the coming month, particularly at the expense of bonds and other fixed income, consistent with ... our own constructive 1H18 outlook for industrial metals - most notably towards zinc and copper."
Expectations of strong demand for metals were supported by data showing that German industrial orders rose more than expected in December. US President Donald Trump plans to unveil details of his long-awaited plan to generate at least $1.5 trillion in infrastructure improvements next Monday.
Steel-related commodities were among a handful of assets that evaded the global market rout, helping to support prices of steelmaking ingredients zinc and nickel. LME nickel ended 2.6 percent lower at $13,385 a tonne, down from a 2-1/2-year peak of $14,040 reached on January 29.
LME zinc finished down 2.6 percent at $3,457 after reaching $3,584 on January 29, the highest since 2007. Zinc was supported by a fall in on-warrant inventories available to the market in LME-registered warehouses to 83,700 after 14,650 tonnes of fresh cancellations. On-warrant stocks are down 58 percent since October 20.
Worries about a tight LME market have been reinforced by a large position holding between 80 and 89 percent of zinc warrants and cash contracts. LME aluminium closed down 1.9 percent at $2,170 a tonne, lead lost 1.2 percent to $2,621 and tin ended 0.9 percent lower at $21,725.