SINGAPORE - Base metals prices fell on Tuesday, as euphoria about a trillion dollar plan to prevent a European sovereign debt meltdown, gave way to longer term worries about the outlook for the eurozone and China.
The euro fell 0.7 percent to below $1.27 versus the dollar having recovered from 15-month lows last week following an agreement to resolve the European debt crisis.
Analysts said the trillion dollar package was a band aid that would buy time to fix the issue, not a cure all.
"The markets are still digesting. It soothed some of the fear but it's a band-aid rather than a cure. In the short term it should halt the panic and give people time to try to solve the problem," said Joel Crane, analyst at Morgan Stanley.
"In terms of fundamental demand, low eurozone growth was already priced into metals. Our main issue is China and we are not out of the woods there. We need to see how much they will cool and whether they will have a hard or soft landing."
China's consumer inflation rose a little more than expected in the year to 2.8 percent, while industrial output undershot forecasts, showing that the world's third-largest economy was still powering ahead and not yet overheating.
"It's a bit higher than the market consensus. The rising inflation is a serious problem, but it's more of an indication of where CPI is heading that is more important than this 2.8 percent," said Dong Tao, economist, Credit Suisse in Hong Kong.
"This probably will not result in an immediate rate hike, but the central bank is getting increasingly nervous of negative real interest rates."
Output of base metals continued strongly in April. Copper rose 15 percent from a year ago to 380,000 tons while output of aluminium vaulted 57 percent to 1.37 million tons.
"The aluminium number has to have Beijing worried. Before the global financial crisis they were trying to kill off excess output. That fell apart last year with the stimulus package," a trader in Sydney said.
"Monday's trade numbers showed a big rise in exports and it just doesn't make sense for them to be selling anything this energy-intensive into the world market, especially when that market is awash."
Three-month aluminium on the London Metal Exchange fell $49 or 2.3 percent to $2,095 by 0701 GMT after rising 3.5 percent on Monday, which was the lightweight metal's strongest daily performance since Feb 16.
Reuters
