Copper Drops as China-Led Demand Concerns Persist

Reuters

Copper slid on Wednesday, wiping out the previous session's gains on concerns that fresh rate cuts in China might not be enough to stabilize its slowing economy and end a collapse in Chinese stocks.

China stocks fell again overnight despite the central bank's rate cuts, but Wall Street opened higher and European equities staged a fightback even as Chinese jitters persisted.

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But with China consuming nearly half the world's copper, the metal remained firmly in negative territory.

Three-month LME copper fell 2.2 percent to $4,955 a tonne by 1422 GMT, having hit a six-year low of $4,855 on Monday.

"When investor sentiment is as poor as it is, prices can always go lower; but the reaction is overdone. (Copper) premiums in China have surged. Couple that with imports, with copper products output, none of it is looking like we should be panicking," Capital Economics analyst Caroline Bain said.

Expectations that a weaker yuan would increase the cost of Chinese imports of refined copper have supported domestic prices in the world's biggest metals consumer.

Meanwhile cash LME copper is trading near its highest premium against the benchmark price <CMCU0-3> since February, indicating physical supply is not easy to come by.

In the United States, a gauge of U.S. business investment plans posted its largest increase in just over a year in July.

The dollar gained on the data and as U.S. stocks recovered, making dollar-priced metals more costly for non-U.S. metals investors and adding to their concerns over China.

"This will be a diminishing-return game, akin to pushing on a string. (China's) economy does not need more credit or easier money - it is suffering from excess capacity and sub-par consumer demand, with the only driver in terms of spending being the government," INTL FCStone analyst Edward Meir said.

Zinc fell 1.7 percent to $1,708, having hit its lowest since 2010 at $1,686. Data showed LME stocks <MZN-STOCKS> at their highest since March, having risen for most of August.

"It appears to be material that was booked to leave New Orleans is being put back on warrant," one trader said.

Aluminum slipped 1 percent to $1,541, having also clocked a six-year low on Monday.

Century Aluminum Co will idle its smelter in Hawesville, Kentucky. It is the first aluminum plant to shut in years, with producers feeling the effects of sinking prices and increased Chinese exports.

Tin fell 2.6 percent at $13,875 after touching $13,670, its lowest since early August, while lead was down 1.4 percent at $1,656 and nickel was 0.3 percent lower at $9,580.