The base metals were all in the red on Tuesday. Copper was off sharply in the pre-dawn hours, rallied during New York morning trading, but then faded again to finish at $3.4691/lb., down 9 2/3 cents.

Nickel was stable during the morning hours, but fell both before and after, closing at $9.0446/lb., down 27¾ cents. Zinc came well off its morning lows, but still ended down at $0.7927/lb. down 2 2/3 cents. Aluminum moved modestly lower, shedding a penny and a third to $1.2348/lb., while lead was slightly lower, dropping a third of a cent, to $0.8496/lb.

Copper dropped on fear that the US economic slump is spreading across the pond, which portends slackening demand from the world housing industry.

Both business and consumer confidence in Germany, Europe’s biggest economy, dropped in July, according to reports yesterday. Meanwhile, U.K. mortgage approvals last month stayed at their lowest levels in at least 11 years, the British Bankers’ Association said.

“The air continues to seep out of commodities, as participants come to realize that the U.S. slowdown is no longer ‘ring-fenced,’ but spreading around the globe with alarming speed,” wrote Edward Meir.

William O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey, added that, “If you look at all the European data, it’s clear that we continue to have a global economic malaise that’s going to persist in limiting the ability of the copper market to rally.

That the euro sank also played in, as did rising stockpiles. Inventories monitored by the LME were up 3,100 metric tons to a six-month high of 166,900 tons. They’ve grown 52% since this year’s low in May.

Taken all together, what it might lead to is “the continuation of the unwinding of the short-U.S. dollar/long commodity trade if indeed European economies continue to slow sharply,” said Bart Melek, of BMO Nesbitt Burns in Toronto.

And, in Shanghai, there were rumors about large volumes of stock inflows from top copper producer Chile.

In company news Rio Tinto (RIO) followed BHP’s 6-month figures, released on Monday, by showing a better-than-expected 55% rise in its own first-half profit, boosted by its takeover of Alcan and strong Chinese demand for industrial minerals. Rio also reported an upbeat outlook.

Source: Base Metals Plummet, Weakness in Europe Suggests Recession is Spreading