METALS-Copper steadies, China concerns undermine sentiment

Published: 11 Mar 2010 09:23:53 PST

* Concerns of overheating in Chinese economy weigh

* Falling stocks and rising cancelled warrants support

* Coming up: U.S. Feb retail sales due Fri at 1330 GMT

LONDON, March 11 - Copper steadied on Thursday, but was undermined by production and inflation data from China, which stoked concerns of monetary tightening from the world's top metals consumer.

But falling inventories of copper in London Metal Exchange warehouses helped support prices.

Benchmark copper on the London Metal Exchange ended at $7,464 a tonne from $7,440 at the close on Wednesday and compared with a session low at $7,356.

Chinese consumer inflation spurted to a 16-month high in February, giving potential grounds for tightening policy sooner rather than later.

"Today is more about fears of Chinese credit tightening because the inflation numbers didn't look too good," said Herwig Schmidt, head of sales at Triland Metals.

"China is the main thing ... when it doesn't use as much metal anymore, we all feel it immediately ... Today or tomorrow we will see $7,300/$7350."

Chinese output data, a day after very strong import numbers, showed domestic copper production rising 16.2 percent in the first two months of the year, to 702,000 tonnes. For a graphic of Chinese output, click: http://graphics.thomsonreuters.com/310/CN_PRD0310.html

Copper, used in power and construction, soared about 140 percent last year on a combination of improving macro data, a weaker dollar and Chinese buying.

Investors are hopeful that should Chinese demand ease, fresh demand from the United States and Europe, as economic conditions improve, will help base metal prices stay up this year.

Traders said news of two strong aftershocks in Chile's capital Santiago had little lasting impact as miners reported no damage to their operations.

INVENTORY DRAWDOWNS

Market participants have pointed to a recent trend of drawdowns in LME inventories as a sign that demand outside China is improving.

Copper stocks fell 2,525 tonnes to 535,650 tonnes, the lowest level since late January.

"A nice story is building, in that copper stocks have dropped seven or eight days in a row," Schmidt added.

Aluminium was at $2,235 versus $2,232. LME stocks for the metal, used in transport and packaging, dipped 4,625 tonnes to an eight-month low at 4.52 million tonnes.

A large portion of those aluminium stocks are tied up in finance deals, to release cash for producers and to earn banks higher returns than they would get in money markets.

Also helping limit losses was a rise in cancelled warrants, material already earmarked for delivery from LME warehouses.

On Thursday, copper cancelled warrants were at 27,100 tonnes, compared with 6,350 tonnes on Feb. 10.

Analysts say that despite improving macro data, Euro zone debt worries have caused economic uncertainty, leading to volatile commodity prices.

"You have emerging markets doing very well, Europe and Japan doing quite badly, the U.S. doing OK, in terms of recovery," said Jesper Dannesboe, commodity strategist at Societe Generale.

"It means that the economic data coming out, is not going to show just one story but two ... our strategy is that we're moderately bullish on commodities but you have to buy the dips."

Steel-ingredient nickel ended at $21,295 a tonne from $21,520 on Wednesday and battery material lead at $2,251 from $2,289.

Zinc closed at $2,337 a tonne from $2,376 and tin at $17,350 from $17,750. Metal Prices at 1711 GMT Metal Last Change Percent Move End 2009 Ytd Percent

move COMEX Cu 336.80 1.30 +0.39 334.65 0.64 LME Alum 2225.00 -7.00 -0.31 2230.00 -0.22 LME Cu 7455.00 15.00 +0.20 7375.00 1.08 LME Lead 2255.00 -34.00 -1.49 2432.00 -7.28 LME Nickel 21270.00 -250.00 -1.16 18525.00 14.82 LME Tin 17430.00 -320.00 -1.80 16950.00 2.83 LME Zinc 2334.00 -42.00 -1.77 2560.00 -8.83 SHFE Alu 16720.00 -180.00 -1.07 17160.00 -2.56 SHFE Cu* 59230.00 -1170.00 -1.94 59900.00 -1.12 SHFE Zin 18695.00 -480.00 -2.50 21195.00 -11.80 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07