LONDON (Reuters) - Industrial metals tumbled on Monday as investors dumped positions to seek refuge in safer assets after Lehman Brothers LEH.N filed for bankruptcy, raising worries over the stability of the U.S. financial system.
Adding to Wall Street turmoil, Bank of America (BAC.N) announced it would buy Merrill Lynch MER.N, AIG was reported to be seeking help from the Federal Reserve, and the Fed said for the first time it would accept stocks in exchange for cash loans.
Aluminum sank almost 4 percent to its lowest since the end of January, copper neared its eight-month low of $6,775 per tonne touched on September 10, zinc plummeted 9.3 percent and nickel fell to its lowest in more than a month.
Copper for delivery in three months on the London Metal Exchange closed at $6,930 per tonne, down $192 or 2.7 percent from Friday’s close. Earlier it hit a low of $6,806.
“Focus will be on the economic environment,” said analyst Gayle Berry at Barclays Capital.
“The prices are very susceptible to potentially more downside in the short term given the current sentiment.”
U.S. industrial output posted its biggest slide in three years last month, data on Monday showed. The weak production figures raised worries over growth in the world’s largest economy and over metals demand.
“The market will be looking at the data coming out of the U.S. in much more detail and that is definitely where the metals are going to take their direction from,” Berry said.
U.S. copper futures for December delivery settled down 5.75 cents, or 1.8 percent, at $3.1365 a lb on the New York Mercantile Exchange’s COMEX division.
Both U.S. and European equity markets were sold heavily. The dollar was hammered before recovering later in the day on mounting risk aversion.
Lack of demand from China, rising stocks and worries over the health of the global economy have depressed metals prices.
Metal markets have been under pressure for awhile with copper down over 20 percent from its July high of $8,940 a tonne.
Lead shed $90 to $1,850, after falling almost 30 percent so far this year.
Zinc has lost 25 percent of its value in 2008, and slipped $123 to $1,762 after hitting a low of $1,710.
In the first seven months of 2008, the International Lead and Zinc Study Group (ILZSG) said, the global lead market was in surplus by 23,000 tonnes, while the zinc market was in a 77,000-tonne surplus.
“When markets are teetering on the brink of financial Armageddon, it is hard to make the case for holding practically anything other than cash, and not surprisingly, we are seeing a broad retreat in most commodities,” MF Global analyst Edward Meir said in a note to clients.
“We suspect that the Merrill/Bank of America news, coupled with a likely approval of the AIG loan facility, will go a long way in stabilizing the markets.”
The LME said it had declared U.S. investment bank Lehman Brothers a defaulter and suspended it from trading on its Select electronic trading system.
Traders did not expect a massive impact from unwinding of Lehman’s positions as the bank was a recent player in the base metals market.
But the story could be different for Merrill Lynch, which has little presence in the commodities markets.
“If BofA decide they don’t want to be in there at all — and they have already made that decision once — then the metals book, which is quite a complicated big book... will take some significant amount of unwinding,” an LME trader said.
Aluminum lost $98 to $2,567 per tonne, after touching an intra-day low of $2,562, its lowest since January 29.
Nickel fell $1,145 or 5.9 percent to $18,105.
Earlier it hit a low of $17,925, the lowest since August12.
Tin eased to $18,900/18,910 from $19,450.
Additional reporting by Frank Tang, and Anna Stablum and Agnieszka Flak; Editing by Carole Vaporean