Shanghai Futures Exchange copper erased overnight gains to close down 0.5 percent at 52,750 yuan ($8,395.80) a tonne on Tuesday after leading the base metals complex lower as "risk off" sentiment soured share markets and safe-haven buying lifted the dollar. The dollar has risen as a rout in global equities prompted anxious investors to cut exposure to riskier assets and seek shelter in the relative safety of the greenback. A stronger dollar makes commodities more expensive for buyers holding other currencies.
But given a pick-up in global manufacturing and supply shortfalls in some metals, Citibank suggested dips offered an opportunity to buy. "The recent sell-off in rates and equities, and a spike in VIX (a volatility index) present an opportunity to rotate into industrial metals," it 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." Steel-related commodities were among a handful that managed to evade the global market rout that followed Wall Street's biggest decline since 2011.
Traders noted that the import window for copper into China is open, potentially supporting prices. One saw limited inflows given traders will not want to risk holding stock over the Lunar New Year holidays, which start on February 15.