Forexpros – Copper futures came under pressure during European morning trade on Wednesday, hovering close to a five-month low after Italy saw borrowing costs rise at auction of five- and 10-year debt, while growing fears over Spain’s deteriorating financial situation further dampened demand for riskier assets.
On the Comex division of the New York Mercantile Exchange, copper futures for July delivery traded at USD3.414 a pound during European morning trade, tumbling 1.4%.
It earlier fell by as much as 1.65% to trade at USD3.409 a pound, the lowest since May 23, when prices touched a five-month low of USD3.386 a pound.
Copper futures fell to the lowest levels of the session after Italy’s Treasury sold EUR3.39 billion worth of five-year government bonds at an average yield of 5.66% earlier in the day, the highest since December and up from 4.86% at a similar auction last month.
Demand was weak, with bids exceeding supply 1.352 times. The country planned to sell EUR3.5 billion in five-year debt.
Italy sold an additional EUR2.34 billion of 10-year debt at an average yield of 6.03%, the highest since January and up from 5.66% at a similar auction last month.
The “bid-to-cover” ratio was a weak 1.395, down from 1.48 at a similar auction in April. The country planned to sell a total of EUR2.75 billion in 10-year debt.
Bond auctions have become key drivers of risk sentiment in recent months, as traders attempt to gauge the ability of indebted euro zone nations to fund themselves.
The yield on Italian 10-year bonds rose to 6.00% following the auction, up from 5.77% hit on Tuesday.
Meanwhile, the yield on Spanish 10-year bonds climbed to 6.65% earlier Wednesday, the highest since November of last year and approaching the critical 7% threshold that preceded bailouts in Greece, Ireland and Portugal.
Late Tuesday, ratings agency Egan-Jones downgraded Spain’s sovereign rating for the third time in less than a month, citing concerns over elevated government debt levels.
Further adding to concerns, the European Central Bank rejected Madrid’s plans to recapitalize troubled lender Bankia through the Spanish central bank’s lending facilities, pushing the country’s banking system closer to the brink of collapse.
Jitters regarding Spain have worsened in recent sessions, after Bankia, the country’s fourth-largest lender, said last week it needed EUR19 billion in state aid to shield itself from bad loans.
Europe as a region is second in global demand for the industrial metal. Prices have tracked investor sentiment toward the euro zone’s debt crisis in recent months.
The heightened sense of risk aversion pushed the euro to a fresh 22-month low against the U.S. dollar, while the dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.4% to trade at 82.80, the highest since September 2010.
A stronger dollar reduces demand for raw materials as an alternative investment and makes dollar-priced commodities more expensive for holders of other currencies.
Copper prices came under further pressure as hopes for a large Chinese stimulus package were dashed after the official Xinhua News Agency reported Tuesday that China has no plans to “roll out another massive stimulus plan to seek high economic growth” like it did in 2008.
In 2008, policy makers unveiled a fiscal stimulus of CNY4 trillion.
China is the world’s largest copper consumer, accounting for almost 40% of world consumption last year. Fears over a slowdown in copper demand from the Asian nation have been weighing on prices lately.
Elsewhere on the Comex, gold for August delivery was flat to trade at USD1,551.55 a troy ounce, while silver for July delivery slumped 0.7% to trade at USD27.59 a troy ounce.
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