Copper at lowest since early February, investors flee

LONDON - Industrial metals hit multi-month lows as fears of contagion from Greece and worries about Chinese demand prompted investors to cash in recent gains.

Benchmark copper on the London Metal Exchange earlier hit $US6,632.75 a tonne, the lowest since February 10.

The metal used in power and construction traded at $US6,735 a tonne at 2357 AEST from $US7,030 a tonne at the close on Tuesday.

Nickel tumbled to a day's low of $US20,701 -- its lowest level since late February.

"It's worries that the Greek problems may spill over to other countries," said Daniel Smith, an analyst at Standard Chartered.

"There's a big panic taking place about the whole outlook," he said of the base metals complex.

"There is some talk about lower growth in China." Reinforcing unease in financial and commodity markets was a warning of looming financial contagion unless the euro zone crisis was stopped in Greece.

Stoking losses in metals, the euro fell to its lowest in more than a year versus the dollar, making dollar-priced metals costlier for holders of euro.

"Risk aversion is building, I am now convinced this is a real correction, rather than what we saw in February," said Deutsche Bank analyst Dan Brebner.

"Participation in industrial metals by hedge funds and investors is likely to decline. We will start to see more commercial players ... aluminium smelters selling forward, auto makers buying forward."

Analysts said consumers and producers will become more prominent in metals markets as they try to cut risks by locking in current prices.

Also weighing are expectations that demand from China, the world's largest consumer of industrial metals, could fall because of tightening measures taken to rein in inflationary pressures.

Potential

However, analysts say Chinese demand growth will be strong.

"China's infrastructure spending, surging automotive demand and construction boom are far from over, while its appetite for metals is set to remain strong also by way of state-led development projects," VTB Capital said in a note.

Markets are also waiting to see the fallout from Australia's proposal to impose a 40 per cent tax on mining profits from July 2012.

"Potentially, the tax could be bullish for industrial metals and iron ore prices in the long run, as some future domestic projects will no longer seem viable," VTB capital said.

Also bullish for copper and aluminium are falling stocks in LME warehouses.

Copper stocks at 493,275 are down nearly 60,000 tonnes since the middle of February.

Aluminium stocks have fallen more than 122,000 tonnes to 4.518 million tonnes since hitting a record high above 4.640 million tonnes in January.

Aluminium, used in transport and packaging, was at $US2,075 a tonne from $US2,165 at Tuesday's close and hit its lowest level since mid-February, at $US2,062.

Zinc tumbled to $US2,001 a tonne, its lowest since February 8.

It traded at $US2,019.50 a tonne from $US2,060.

Tin was at $US17,300 from $US17,850 and lead was at $US1,893 from $US2,060.

Battery material lead hit a day's low of $US1,871, its lowest since early September.

Nickel traded at $US21,650 from $US24,650 on Tuesday.

The stainless steel ingredient is pressured by perceptions demand may have been overestimated and expectations that a large amount of nickel pig iron will find its way to the market this year.

"The Chinese have been very quick to restart nickel pig-iron production," said John Meyer, an analyst at investment bank Fairfax.