Copper (HG-FT) dropped around 1.5 per cent on Tuesday, with dealers citing dollar strength and concerns that China's implementation of a clampdown on lending for some banks could curb metals demand in the world's top consumer.
Nickel fell to a two-week low, while lead tumbled to its weakest in two months.
Zinc lost ground, heading toward a six-week low hit last week, while the dollar rose 0.3 per cent against a basket of currencies, making metals priced in the currency costlier for non-U.S. investors.
Losses gathered pace on news that China implemented a planned increase in required reserves for some banks, in the latest move to tighten liquidity and rein in bank lending, spooking investors worldwide and triggering selling in Asian and European stock markets.
Copper for three-months delivery on the London Metal Exchange fell to $7,356 (U.S.) a tonne by 0952 GMT, versus Monday's $7,465 a tonne. The metal, used in construction and wiring, fell to a one-month low of $7,194 on Friday.
“China tightening fears deepened,” said Alex Heath, head of base metals at RBC Capital Markets. “There's no doubt the market could not maintain the appetite for risk,” he said.
A series of moves from metals consuming giant China's central bank to rein in excessive credit and U.S. President Barack Obama's plan to restrict riskier trading at banks has dampened sentiment in commodity markets since last week.
Surprise “Funds have been buying on the back of China. What we're seeing now undoubtedly has an impact on the investment regime that's put metals prices up where they are,” Mr. Heath said.
“The surprise is copper's current level given the slow demand in the United States and in Europe and rising inventories,” he added.
Copper stocks at LME-registered warehouses rose by 175 tonnes on Tuesday to 533,575 tonnes, highest since early March 2009. But cancelled warrants – materials earmarked for delivery – jumped by nearly 70 per cent last week to hit over 12,000 tonnes. They currently stand at 11,550 tonnes.
“The rising cancelled warrants in January suggests the demand from Asia may be rising in the first quarter, which will not support a sharp correction in prices,” said Peng Qiang, an analyst at COFCOFutures.
Rising LME stocks are also a feature of nickel and aluminum (AL-FT) markets where inventories stand close to record highs and weigh on prices.
Nickel stocks are down 198 tonnes at 162,588 tonnes, after hitting a record high on Monday while the three-month price traded at $17,950 a tonne, bouncing from a two-week low of $17,750 a tonne hit earlier and versus Monday's $18,150.
Stocks are heading for their biggest monthly rise in almost 15 years.
Aluminum stood at $2,230 a tonne from Monday's $2,243 a tonne, while stocks are at 4.62 million tonnes, a tad lower than the record high of 4.64 million tonnes hit last week.
Zinc, used for galvanizing steel, was unchanged at $2,315 a tonne, battery material lead was bid at $2,174 from Monday's $2,220 and tin traded at $17,800 a tonne from $17,940.
About 100 contract workers of a shipyard unit of PT Timah Tbk have been on strike for two days demanding better salaries, but tin output has not been affected, a company official said on Tuesday.
