Aluminium and lead prices slid to their lowest in more than two years overnight as computer-driven funds sold after an options expiry amid concerns about demand in top metals consumer China.
Traders said there was no specific news that triggered a sharp reversal in the market around midday in Europe after most metals prices had been slightly firmer in the morning.
“The market was spooked and we’ve seen quite a few stops hit in zinc and copper. It was more technical selling than anything in a thin market since most of the Chinese are out today,” said a trader at a major broker.
Many markets were closed for the May 1 holiday, including China.
“A lot of the selling is from algos (algorithmic computer-driven funds) and we also had the options expiry this morning so a lot of people had to cover positions,” the trader added.
Analysts said that, while investors welcomed signs of progress in US-China trade talks, they were still concerned after data on Tuesday showed Chinese factory growth unexpectedly slowed in April.
Benchmark lead on the London Metal Exchange tumbled 3.7 per cent to $US1,852 a tonne in closing open outcry trading, the lowest since August 2016 and the biggest one-day drop since August last year.
Lead is the biggest loser on the LME so far this year with losses of about eight per cent.
LME aluminium touched a low of $US1,784.80, the weakest since January 2017, before rebounding and ending up one per cent at $US1,815.
On-warrant stocks of aluminium in LME-registered warehouses jumped to their highest since January at 776,675 tonnes, having climbed by a about a fifth over the past week, LME data showed.
Inventories of copper in warehouses monitored by the London Metal Exchange fell by 8,825 tonnes from the previous day to 173,575 tonnes .
This helped the premium of cash copper over the three-month contract climb to its highest in over a month at $US11.75 despite a recent surge in inventories.
LME copper slumped 2.8 per cent to finish at $US6,235 per tonne, the weakest since February 18.
The US Federal Reserve is expected to leave borrowing costs unchanged later on Wednesday.
The US dollar fell to a one-week low against a basket of other currencies as a disappointing report on manufacturing activity rekindled worries about the US economy.
This makes US-dollar-priced commodities cheaper for holders of non-US currencies.
Industrial metal markets are taking a breather as they await tangible evidence that China’s latest stimulus package is feeding through to a flagging manufacturing sector.
LME zinc shed 1.9 per cent to close at $US2,772 a tonne and tin lost 0.5 per cent to $US19,550.
Nickel did not trade in closing rings but was 0.9 per cent lower at $US12,155 in electronic trading.