Sentiment was less bleak in other metals, with zinc hitting its highest in more than three months and aluminium touching a six-week peak, underpinned by improving demand.
Basic questions have begun to play on the minds of traders and bankers doing business in China after an investigation began at Qingdao Port, a huge trading hub in the northeast, into whether more than one licence had been issued against the same material. The case of Qingdao, the world's seventh-largest port, has yet to play out and could be an isolated problem involving one or a handful of companies, rather than endemic at ports.
But for many Western traders eyeing the gargantuan growth of China's commodity demand, credit is a touchy issue that brings back memories of the 2008 financial crisis, making them especially jumpy when credit related issues arise.
In addition, data out earlier showed China's imports of major commodities fell in May from the previous month as robust shipments in April caused a supply overhang, credit tightened and authorities increased scrutiny of commodities financing.
Copper imports from the world's top consumer fell 15.6% from a month ago to 380,000 tonne in May. China consumes around 40% of the world's copper. "Until there is more clarity about the amount of metals investigated traders will dump more futures. At the same time copper is quite oversold now," said Gianclaudio Torlizzi, partner at metals consultancy T-Commodity. "A total crackdown on shadow banking is not in the interest of the Chinese government because they are pretty concerned about growth. We've seen that since March the government is easing monetary policy again."
Three-month copper on the London Metal Exchange fell within to a sessions low of $6,636 a tonne, its lowest since earlier May. It traded at $6,663 a tonne at 1011 GMT, down 0.34%. LME copper fell 2.3% last week to post its largest weekly drop since mid-March.
Limiting losses in copper was a combination of record low global interest rates and the improving health of major economies, which sent world shares to within touching distance of an all-time high on Monday.
Data out on Friday showed US employment returned to its pre-recession peak in May, with a solid pace of hiring that offered confirmation the economy has snapped back from a winter slump. Investors were also buoyed last week by the ECB promise to douse potential deflation with bundles of cash.
Still, copper remains firmly in a downtrend for now, with recent worries about supply tightness fading fast.
Cash copper for nearby delivery traded at just $9 above the benchmark three month price on Monday, from more than $100 at the end of May; with some copper at Qingdao Port said to be on its way to more regulated LME warehouses.
Meanwhile China traders continue to dump physical metal amid worries that access to financing will be constrained. Premiums for copper held in Shanghai's bonded zones dropped another $5 to $90-$110, according to China price provider Shmet, down $25 since the middle of last week. "Copper is the only net short (sell position) in the LME complex. Speculative positioning in aluminium grew week on week... shifting the market from neutral stance to 14% long of open interest," broker Marex Spectron said.