(Minews) - Copper fell to a fresh 5½-year low during Asian trading hours amid a broad selloff in base metals triggered by the strengthening dollar and concerns about weaker demand from key consumer China.
Benchmark three-month copper futures were trading at $5,345 a metric ton on the London Metal Exchange at 0740 GMT, down 3% from Friday’s close and at the lowest level since July 30, 2009. Three-month nickel futures meanwhile fell to an eleven-month low of $14,015 per ton, while zinc prices reached a week’s low of $2,068 per ton, though both metals recovered somewhat later in the day. Aluminum dropped by 0.6% to $1,819 per ton.
Base metals, which are priced in dollars, tend to weaken when the greenback is strong because they would otherwise be more expensive for foreign buyers in their own domestic currencies. The dollar has risen against major international currencies such as the euro in recent days, following the European Central Bank’s decision last week to launch a program of quantitative easing and as the outcome of elections in Greece have added to political differences within the eurozone.
Concerns about the outlook for China’s property sector are also weighing on copper, which is used to make electric wiring. The property sector constitutes about half of China’s copper demand. China, in turn, is the world’s biggest copper consumer.
Analysts said copper prices could still fall further.
“We have been bearish on copper for well over a year and prices have declined by more than 20% over the period,” Goldman Sachs said in a report on Monday. “Our latest cost analysis suggests further downside from current prices in 2015.”
Goldman said copper prices could fall to $5,200 a ton over the coming year because of continued weakness in Chinese demand and rising inventories anticipated at the London Metal Exchange.
Plunging oil prices are also affecting sentiment toward copper and other metals because of fears they could cause deflation in some major consuming countries, a trend which could in turn dampen demand.
“Copper is being dragged by the price of crude oil. The market sentiment is quite weak,” said Avtar Sandu, Singapore-based senior commodity manager at Phillip Futures.
Some analysts have suggested support could emerge for copper as China’s State Reserve Bureau buys up the metal to keep in reserve, as it often does when prices fall significantly. Purchases by China’s state power grids could also help put a floor under prices, although the level at which that might happen remains uncertain.
