Copper fell on Monday as risk aversion swept through the markets due to the worsening euro zone debt crisis and the threat of a U.S. default, while the fight against inflation in top metals consumer China looked set to intensify.
Benchmark copper on the London Metal Exchange was down 0.3 percent at $9,644 a tonne at 1427 GMT from $9,672 at the close on Friday.
The metal used in power and construction hit a three-month high of $9,789.75 a tonne on July 8, a day before data showed inflation in China rose 6.4 percent year-on-year in June from 5.5 percent in May.
“That was a nasty upward surprise in Chinese inflation. The danger is that China’s restocking phase could be a little bit delayed,” said Nic Brown, an analyst at Natixis. “We wouldn’t be at all surprised to find that now base metals have rallied, buying from China dries up a little bit.”
China’s economy grew a faster-than-expected 9.5 percent in the second quarter, helped by solid domestic consumption and investment, which eased fears of a hard landing and strengthened Beijing’s resolve to fight persistently high inflation.
Analysts expect more monetary tightening, which would crimp demand for copper. China accounts for about 40 percent of global copper consumption estimated at around 21 million tonnes.
In the United States, also a large metals consumer, there were deepening concerns that it could default. Failure to reach a deal to increase the debt ceiling could send shock waves through global financial markets and plunge the country into another recession, economists have warned.
“It’s not looking good, I can’t see what would push copper back above the $10,000 level,” a LME trader said.
LME copper hit a record high of $10,190 a tonne on Feb. 15.
The euro zone’s debt problems also weighed on sentiment as Europe struggles to put together a second bailout for Greece and prevent the region’s debt crisis from spreading.
“With global economic growth slowing, demand growth is set to decelerate this year,” Bank of America Merrill Lynch said in a note. “High copper prices meant only subdued buying has emerged from commercial players.”
BoA forecasts a deficit for the copper market this year and a “small deficit” for the aluminium market.
Three-month aluminium traded at $2,475 a tonne in official rings from $2,494 at Friday’s close.
The metal used in transport, packaging and construction has been supported by bank financing deals that have tied up about 70 percent of stocks in LME-registered warehouses.
Aluminium will be supported by changes in China, Brown said. “You can probably explain some of that by anticipation of a move from 13 percent to 9 percent rebate, which is encouraging aluminium exports, encouraging use of aluminium.”
China is weighing whether to cut export rebates for some aluminium extrusion products to 9 percent from the current 13 percent and whether to abolish the 5 percent rebate for exporting stainless steel wires and rods.
Zinc was $2,417 a tonne from $2,375 on Friday, while lead was at $2,726 from $2,708, tin was $27,075 from $27,200, and nickel was $23,785 from $24,155.
© Thomson Reuters