METALS – Tensions in Korea and Euro Zone Concerns Lead to Copper Decline, Reports Reuters

Copper Prices Dip Amid Rising Geopolitical Tensions and Debt Concerns in Europe

Key Points:

• Korean tensions and European debt fears limit risk appetite.
• Ongoing strike at Collahuasi, the third-largest copper mine.
• Upcoming U.S. durable goods data release expected on Wednesday.

By Chris Kelly and Melanie Burton

NEW YORK / LONDON, Nov 23 – Copper prices closed lower on Tuesday, hitting a one-week low as geopolitical tensions heightened concerns over Europe’s debt crisis. This uncertainty is leading investors to seek refuge in safer assets like gold and the U.S. dollar.

An artillery exchange on the Korean peninsula added to existing risk aversion in financial markets. Zachary Oxman, managing director at TrendMax Futures in California, stated, "The primary concern for many investors is whether this incident is isolated or indicative of further tensions." He noted that this uncertainty is contributing to the rise in gold prices and the strength of the dollar, alongside ongoing European debt issues.

On the London Metal Exchange (LME), copper was last traded at approximately $8,140 to $8,145 per tonne, a decrease from Monday’s close of $8,290. Earlier in the day, prices fell to $8,050 per tonne, marking a 10% drop from the recent high of $8,966 achieved on November 11.

COMEX copper for December delivery decreased by 4.90 cents, or 1.3%, closing at $3.7025, reflecting a decline of over 9% from a two-year peak of $4.0835 reached on November 11.

Oxman remarked, "We might see a shift from a weak dollar, strong commodity trend to a strong dollar with weaker commodities, particularly if the euro continues to weaken."

The U.S. dollar has experienced a second consecutive day of gains, negatively impacting industrial metals prices. The dollar’s strength was further supported after German Chancellor Angela Merkel indicated that while Ireland’s crisis is distinct from Greece’s, it is nonetheless concerning and that the eurozone is in an "exceptionally serious" situation.

"This feels like a cyclical rotation, similar to a line of dominoes waiting for the first one to fall," Oxman added, emphasizing the fragile state of the current economic environment.

Despite positive growth data from the U.S. and the eurozone, the bearish momentum among sellers proved too strong to overcome. Investors are increasingly worried about demand forecasts in China, where expectations are high for further tightening of monetary policy, potentially restricting cash flow.

Recent data indicated that China’s copper imports dropped nearly one-third in October; however, analysts attribute this decline more to supply constraints than to a drop in demand. Confidence in Chinese demand remains intact, as David Wilson from Societe Generale noted, "Copper producers are exceptionally busy, with full order books, and construction activity remains robust, even in smaller cities."

Market Tightening Signals

Signs of a tightening copper market are emerging as LME inventories have been decreasing since the start of the year. Traders noted that copper for delivery on December 15 is trading at significantly higher premiums compared to contracts for later delivery.

On the supply side, workers at Collahuasi, the world’s third-largest copper mine, have rejected management’s latest wage proposal, opting instead to push for the reopening of contract negotiations to resolve a strike that has lasted for 19 days.

Elsewhere in the metals market, aluminum closed lower at $2,255 per tonne, while nickel remained unchanged at $21,600 per tonne. Zinc fell by $53 to $2,085 per tonne, and lead dropped as low as $2,164 before closing down $63.50 at $2,186.50 per tonne. Tin approached a two-month low of $23,815 per tonne before finally closing down $400 at $23,900.

(Reporting by Alison Birrane and Rebekah Curtis in London; editing by Dale Hudson)