Base metals have closed lower on the London Metal Exchange (LM), losing ground in line with the euro following comments by European Central Bank (ECB) President Mario Draghi.
At the PM kerb close on Thursay, LME three-month copper was down 0.5 per cent at $US8,200 a metric ton. Tin was 0.1 per cent lower at $US24,675/ton.
The euro fell to a nearly two-week low against the US dollar Thursday after Draghi stressed the downside risks to the economic outlook and inflation, including the recent appreciation of the common currency.
Draghi made an explicit reference to the rise in the euro in his prepared remarks to a press conference, commenting that the currency's strength could weigh on the inflation outlook, even if the risks were broadly balanced in the medium term.
Since base metals are priced in US dollars, the euro's slide damped their appeal to buyers using the single currency.
Activity continues to slow in the base metal physical markets as business activity in top metals consumer China winds down ahead of the Lunar New Year, which starts late this week, traders said.
Amid such quiet conditions, some analysts were scrutinizing the long-standing issue of base metals caught up in warehouse queues due to metals being used for the purposes of financing deals, rather than for manufacturing or industrial uses. This activity could begin to make it harder to assess the underlying fundamental market balance of the copper market, analysts warned.
"With LME copper inventories continuing to pick up, often in locations with long exit queues, copper is increasingly looking like becoming a financing vehicle," wrote Standard Bank analyst Leon Westgate in a note Thursday. Aluminum has usually been associated with this trend.
Copper is unlikely to see the same significant multiyear surpluses in aluminum and zinc, according to Standard Bank. However, analysts suggested the metal appears to be entering a period where financing activity and its consequences -- such as long exit queues at some LME warehouse locations -- look set to become much more of a significant factor.
While the effect may be shorter lived for copper than for some other LME metals, Westgate cautioned that if this were the case, the real demand picture for it may become distorted, "making it even harder to see through the murk of the copper market".
"A useful tool kit for looking at the underlying copper market looks like being rendered obsolete," he added.
Prices in dollar a metric ton.
3 Months Metal Bid-Ask Change from
Wednesday PM kerb
Copper 8200.0-8200.5 Dn 45
Lead 2409.5-2410.5 Dn 12.5
Zinc 2162.0-2163.0 Dn 5
Aluminum 2098.0-2099.0 No change
Nickel 18175.0-18180.0 Dn 145
Tin 24675.0-24680.0 Dn 150
Aluminum Alloy 1865.0-1875.0 Dn 50
Aluminum Alloy-NASAAC 1915.0-1925.0 Dn 25