May 30, 2012 / 2:02 AM / 5 years ago

Copper closes in on 2012 low as euro debt fears bite

A worker checks a shipment of copper inside the plant at the copper refinery of Codelco Ventanas in Ventanas city, about 164 km (101 miles) northwest of Santiago, April 16, 2012. REUTERS/Eliseo Fernandez

NEW YORK/LONDON (Reuters) - London copper fell more than 2 percent on Wednesday, turning negative for the year and coming within $20 of its 2012 low on fears of a widening European debt crisis and fading hopes for a Chinese stimulus.

Copper plunged alongside other economically sensitive raw materials like crude oil, which slid to a fresh 2012 trough on a worrisome petroleum demand outlook centered around Europe’s widening debt crisis including Spain’s banking problems, Italian borrowing costs and upcoming Greek elections. <MKTS/GLOB>

“I think what the market is beginning to price in and what we are going to see priced in over the next few weeks is the eventuality of that June 18 deadline, where Greece may very well exit the euro,” said Zachary Oxman, managing director with TrendMax in Encinitas, California.

“Greece is really the lynchpin. If Greece goes, then comes Spain. We’re climbing the wall of worry again.”

London Metal Exchange (LME) benchmark copper touched $7,463 a tonne, its lowest since hitting a 2012 trough of $7,445 on January 9. It closed down more than 2 percent at a bid of $7,475 a tonne versus Tuesday’s close at $7,670.

Further support is seen at $7,445 and $7,368, a Fibonacci retracement point, traders said.

In New York, the COMEX July contract hit its lowest level since late December at $3.3725 per lb, before ending the day down 7.20 cents, or 2 percent, at $3.39.

Copper prices are now down nearly 2 percent for the year, erasing gains of more than 12 percent seen in February.

“You had comments from China overnight dashing hopes of a major stimulus program, then you had the Spanish government rebuffed by the ECB in terms of shoring up Bankia with bonds,” analyst Leon Westgate of Standard Bank said.

Influential academics said Beijing should shun aggressive fiscal stimulus, in remarks published in leading state-backed newspapers on Wednesday.

Those views joined a chorus of commentary countering market expectations that China might unveil a stimulus package similar to the 4 trillion yuan ($630.1 billion) in spending unleashed during the global financial crisis.

Adding to the concerns, data on Wednesday showed euro zone economic sentiment fell more than expected in May as pessimism among manufacturers and retailers in particular worsened, although consumers became slightly less downbeat about the economy for the year ahead.

In the U.S., contracts to purchase previously owned U.S. homes unexpectedly fell in April to a four-month low.

“We are not trading any supply/demand fundamentals. There are concerns about China and Europe, and the pending home sales numbers were not very good today,” said Bill O‘Neill, partner of LOGIC Advisors in Upper Saddle River, New Jersey.

“There are lots of growth concerns, and that’s keeping copper on the defensive today.”

Giving brief respite to markets, the European Commission said on Wednesday the euro zone should move to a banking union and consider directly recapitalizing banks from its permanent bailout fund.

CHINA INFRASTRUCTURE EYED

Investors are keeping a close eye on Beijing’s vows to support the economy after authorities last week approved a list of infrastructure investments.

The world’s largest copper consumer, accounting for 40 percent of global refined copper consumption last year, will allocate an annual fund of up to 2 billion yuan ($315 million) from this year to help develop and mass produce energy-saving vehicles to cut carbon emissions, the government said.

“Although the policy actions look exactly like the ones adopted nearly four years ago, they are not a big stimulus package. The projects were planned under the Five-Year Program, spending is more modest, and the projects and industries were chosen more selectively,” Barclays analyst Yiping Huang said in a research note.

Some traders said they would adopt a wait-and-see stance until there was evidence that demand was picking up in downstream industries.

“Major copper buyers in China recently told us their order books are still very weak. This will be a factor weighing on prices at least in the short- to medium-term,” a Shanghai-based trader said.

In other metals, tin fell $430 to end at $19,770 a tonne.

Reflecting tightness in immediate supply, the premium for cash tin to three-months material jumped to $12, from a discount earlier this week.

Additional reporting by Carrie Ho in Shanghai; Editing by Keiron Henderson, Jane Baird and Jim Marshall

Our Standards:The Thomson Reuters Trust Principles.
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