METALS-Copper dips on demand concerns, firmer dollar

Published: 01 Nov 2009 16:57:43 PST

* Copper stocks rise in London, Shanghai

* Market still waiting for evidence of demand uptick

* Shanghai zinc stocks surge, weighing on prices

LONDON, Oct 30 - Copper prices edged lower on Friday on a firmer dollar and as worries over still weak demand resurfaced, overshadowing better than forecast U.S growth data.

At 1504 GMT, benchmark copper on the London Metal Exchange traded down at $6,557 a tonne from a close of $6,664.50 on Thursday, when the metal used in power and construction closed up nearly 4 percent on the day.

"The market is clearly confused," Daniel Brebner, an analyst at Deutsche Bank said. "You are getting good news followed by bad news, followed by mediocre news -- so directionally it's challenging to arrive at any kind of conviction."

"Generally very cautious. There is not a lot of significant positions being put on at this point," he added. U.S. data released on Friday showed consumer spending fell in September for the first time in five months, while employment costs rose 0.4 percent in the third quarter.

On Thursday, Washington's first estimate of U.S. gross domestic product showed the economy expanded at an annual rate of 3.5 percent in the third quarter, suggesting it was emerging from the worst recession in 70 years.

"GDP is the reason for the recent upward blip but I think the reality will be short lived," GFMS managing director Neil Buxton said. "There's a fair amount of good news priced into copper, any upward move is limited."

The dollar extended gains against the euro after the data, as investors returned to the safe haven of cash. A stronger dollar makes dollar-priced metals more expensive for non-U.S. investors, and can tempt funds to take profits.

CHINA DOUBTS

Copper prices have more than doubled in the year to date, boosted by a declining dollar, large fund flows and record import buying from China, the world's largest metals consumer.

More recently, worries the Chinese will reduce import buying in the fourth quarter have capped gains, especially as demand in the OECD cannot yet make up for reduced Chinese buying.

"You've got deceleration in Chinese consumption in the next quarter or two (and) very moderate re-stocking in the OECD, which results in the possibility of demand disappointment that the market is factoring in already," said Deutsche's Brebner.

LME copper stocks continue rising, indicating weak demand outside China. Latest data showed stocks rose 800 tonnes to total 372,200, the highest level in more than five months.

In Shanghai, copper stocks monitored by the Shanghai Futures Exchange rose 7 percent from one week earlier.

China's refined copper imports surged by more than a quarter in September but analysts think it is only a matter of time before the buying subsides.

"For the October (Chinese import) data there may be a big negative surprise," said Evolution Securities analyst Charles Kernot.

On Monday, copper touched a 13-month high of $6,732, and the metal is on track for a 6 percent monthly gain.

Among other industrial metals, aluminium, used in transport and packaging, traded at $1,933.75 from $1,955.

LME inventories fell 5,550 tonnes but remained near record levels of around 4.5 million tonnes. Inventories in Shanghai rose 2 percent on the week, while zinc stocks surged to 145,536 tonnes from 117,706 tonnes.

Zinc, used to galvanise steel, traded at $2,200 from $2,265, under pressure from the Shanghai stocks data, but still on course for a 12 percent gain this month.

Battery material lead was traded at $2,326.50 from $2,365, tin was at $14,675 from $15,000 and steel-making ingredient nickel was at $18,300 from $18,690.

On the supply side, Norilsk Nickel, said it has cut its nickel output forecast for 2009 to 284,000 tonnes from previous 285,000-300,000 tonnes.

Metal Prices at 1509 GMT Metal Last Change Percent Move End 2008 Ytd Percent

move COMEX Cu 296.75 -5.35 -1.77 139.50 112.72 LME Alum 1923.00 -32.00 -1.64 1535.00 25.28 LME Cu 6535.00 -129.50 -1.94 3060.00 113.56 LME Lead 2322.00 91.00 +4.08 999.00 132.43 LME Nickel 18200.00 -490.00 -2.62 11700.00 55.56 LME Tin 14525.00 -475.00 -3.17 10700.00 35.75 LME Zinc 2195.00 5.00 +0.23 1208.00 81.71 SHFE Alu 15235.00 115.00 +0.76 11540.00 32.02 SHFE Cu* 51200.00 1170.00 +2.34 23840.00 114.77 SHFE Zin 16830.00 365.00 +2.22 10120.00 66.30 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07