Bloomberg Copper, Nickel, Lead Slump on Stronger Dollar, Debt Concern

May 5 (Bloomberg) -- Copper fell to a 12-week low and nickel dropped as much as 16 percent, leading declines in industrial metals in London, on concern Greece’s debt crisis will spread and curb Europe’s economic recovery.

Europe consumes 20 percent of the world’s copper output, and 15 percent to 25 percent of aluminum, zinc, nickel and lead, according to Barclays Capital.

There are growing expectations that Greece’s 110 billion- euro ($143 billion) rescue package will need to be repeated in Spain and Portugal. European Central Bank council member Axel Weber said today there is a threat of “grave contagion effects” in the euro area. Demonstrations against austerity measures in Greece turned deadly, with three people killed after protesters set fire to a bank in central Athens.

“Fears are growing that the Greek government cannot control its people and the debt crisis,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said by phone. “As long as the uncertainty persists on the markets and risk aversion is still increasing, there will be pressure on commodity prices.”

Copper for delivery in three months declined 3.8 percent to $6,760 a metric ton as of 3:10 p.m. on the London Metal Exchange, after earlier reaching $6,632.75, the lowest since Feb. 10. The contract is now down 8.5 percent this year, having added as much as 8.3 percent. Futures for July delivery fell 3.6 percent to $3.0635 a pound on the Comex in New York.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, rose for a third day. A stronger dollar increases the cost of commodities denominated in the currency for those holding other monies.

U.S. Dollar

“The U.S. dollar might rise further as investors are exiting Europe,” Commerzbank’s Briesemann said.

Nickel for three-month delivery on the LME slid 12 percent to $21,700 a ton, paring this year’s advance to 17 percent, still the largest among the six main metals traded on the exchange. The metal, mostly used to make stainless steel, dropped as much as 16 percent, the most since October 2008.

“There is technical selling and risk aversion,” Deutsche Bank AG analyst Daniel Brebner said by phone. “Fundamentals for nickel are looking less promising, with more evidence of a big ramp-up in nickel pig iron.”

China, the world’s biggest nickel consumer, more than tripled first-quarter output of cheaper nickel pig iron in the first quarter, according to Shanghai Metals Market.

“The metals were at inflated levels and we analysts are struggling to justify the levels we’ve seen in the first quarter,” said Neil Buxton, managing director of London-based researcher GFMS Metals Consulting Ltd.

Production Costs

Copper’s average production cost is $2,200 ton and that of nickel is at $15,000 a ton, Buxton said.

“Despite the correction in prices, the vast majority of producers are still making money. We don’t expect any supply response” to the slump, he said.

Lead dropped 6.7 percent to $1,922 a ton, after falling as much as 7.5 percent to $1,905, the lowest since August 2009. Zinc declined 5.2 percent to $2,035 a ton, after reaching $2,001, the lowest since Feb. 8. Aluminum fell 4.1 percent to $2,072 a ton and tin slid 3.1 percent to $17,300 a ton.

“Commodities in my view are overreacting to Greece’s sovereign debt issue and fears of contagion,” said Ruy Ribeiro, global commodity strategist at JPMorgan Chase & Co. in London. “The risk of contagion should be monitored closely, but fundamentals are now a lot more positive.”