Copper crumbled Monday to its cheapest price since late November as investors, fearful about further tightening measures in China and an inability by policymakers to resolve Europe’s debt crisis heavily reduced their exposure to risky assets.
Copper’s 3.8 per cent price drop – its biggest one-day loss since early March – led all decliners in the base metals complex, as concerns about slowing economic growth, particularly in the Western world, limited any hint of bullishness from a still-supportive fundamental picture for the red metal.
“The market is beginning to price in quite a gloomy economic scenario for the rest of this year. Pessimism about Europe has increased significantly and you’re seeing that being played out in assets that are sensitive to growth,” said Gayle Berry, an analyst at Barclays Capital.
“Base metals are suffering on the back of growth expectations that continue to turn negative. In the backdrop, the fundamentals remain robust, particularly with Chinese demand still growing, but these markets are not trading on fundamentals at the moment.”
However, a partial resolution to a work stoppage at the world’s third-biggest copper mine in Indonesia as well as a large inflow of metal into exchange-monitored warehouses seemed to erode some of the metal’s supply side support.
London Metal Exchange (LME) three-month copper dived to a session low at $8,323 a tonne, its cheapest since late November last year, before ending the day with a $332 loss at $8,364.
Copper has lost around 16 per cent of its value since early August, resulting in sharp decline in total market open interest.
In New York, the key December COMEX contract plunged 14.90 cents to settle at $3.7825 per lb, near the bottom of its $3.7655 to $3.9150 session range.
Reflecting growing risk aversion, world stock markets sank, the euro shed more than 1 per cent and oil prices tumbled, as a new round of fear gripped markets that Greece may default on its debt and trigger economic fallout that would cascade throughout the euro zone.
Investors are likely to focus on a policy meeting of the U.S. Federal Reserve on Tuesday and Wednesday, where the Fed could take steps to increase downward pressure on longer-term interest rates to help spur a recovery of the world’s largest economy.
“The main event for this week is likely to be the Fed meeting and that is something that will likely guide most markets towards the end of the week,” Danske Bank analyst Christin Tuxen said.
“We’re expecting that we’ll see some new stimuli measures being announced by the Fed but to a very large extent, this is probably already priced in the market so in that sense, I do not think it’s going to be a major relief for base metal markets.”
Copper’s weakness was also influenced by the partial end to a strike at Freeport McMoRan’s Grasberg mine in Indonesia.
More than a thousand workers have returned to the mine, the company said on Monday, leading the union to say some production has restarted at the world’s third-biggest copper mine. But workers have yet to agree a pay deal with the company, a union official said.
Further downside pressure came from overnight inventory data showing copper stocks at LME-approved warehouses rose 3,100 tonnes to 469,125 tonnes, their highest level since late July.
Also likely to weigh on global demand for copper is the prospect that the world’s two biggest developing nations are expected to stay in a monetary tightening mode.
Chinese Premier Wen Jiabao is still worried about high prices, according to a statement on the central government’s website on Friday, signaling that the end of the country’s tightening cycle is still not in sight.
“People are worried about whether real demand is going to be there for the reminder of the year. There is talk that there has been a pretty big build up of copper semis inventories in the last four weeks,” one London-based market source said.
Elsewhere, India raised interest rates for the 12th time in 18 months on Friday and signaled more was to come, confounding expectations that it was coming to the end of its tightening cycle.