Copper falls to week-low on strong dollar, demand uncertainty

LONDON Mon Oct 8, 2012 5:19pm BST

Used copper wires are seen in a recycling company in Thoerishaus near Bern July 3, 2011. REUTERS/Ruben Sprich

Used copper wires are seen in a recycling company in Thoerishaus near Bern July 3, 2011.

Credit: Reuters/Ruben Sprich

LONDON (Reuters) - Copper prices slipped to their lowest level in more than a week on Monday, pressured by a firm dollar and persistent concerns about the outlook for demand from top consumer China.

Benchmark three-month copper on the London Metal Exchange was untraded at the close, but bid at $8,180, down from Friday's close of $8,295. Earlier, the metal used in power and construction touched its lowest since late September at $8,128.

"Over the last few weeks copper prices increased due to financial support from QE3 and not from fundamentals. A correction was overdue and we think there is scope for copper to move down to around $7,800 - its 200 day moving average," said Gianclaudio Torlizzi, partner at T-Commodity.

"We need to have a clearer picture on the manufacturing sector (in China) and that will be crucial in order to provide direction for copper."

Copper has risen around 8 percent since the start of September and touched a 4-1/2 month peak of $8,422, fuelled by a third round of quantitative easing (QE3) by the U.S. Federal Reserve, the promise of bond buying by the European Central Bank (ECB) and stimulus measures in Japan and China.

The World Bank earlier cut its economic forecasts for the East Asia and Pacific region, saying the slowdown in China could get worse and last longer than expected, sparking renewed debate over a sharp decline in growth in the world's second largest economy.

China is the world's top consumer of copper, with demand from the country representing around 40 percent of global refined copper consumption.

Investors will eye China's third quarter growth data at the end of next week, which analysts expect to show the weakest three months of the year. China is also expected to announce export-import data for September on Saturday.

Adding pressure to metals prices was a fall in the euro against the dollar, as investors grew cautious ahead of the third-quarter earnings season.

Also weighing was uncertainty over the timing of a Spanish bailout request, with little progress expected from a meeting of euro zone finance ministers later on. <EUR/>

A weak euro makes dollar-priced metal more costly for European and other non-U.S. investors.

The dollar rallied on Friday after data showed the U.S. unemployment rate fell to a near four-year low in September, though the numbers also sparked worries that the Federal Reserve's quantitative easing programme might end prematurely.

BNP Paribas analyst Stephen Briggs said other payrolls concerns might also be dogging metals. "Realistically there's a lot of question marks around that drop in the unemployment rate, it may indicate some statistical anomalies," he said.

"We're in a risk off day, it's not anything very specific to base metals, we've had a pretty good run since early August so it was always likely we were going to get a correction."

National holidays in Japan and the United States on Monday were expected to limit trading activity.

SLUGGISH DEMAND

In China, traders returned to the market from a week-long national holiday to find few signs of demand improving.

"Investors are dismayed by sluggish downstream demand in China. In copper, spot prices are still trading at a large discount to prompt-month futures. If this continues, there may be more downside room to copper futures," said Orient Futures Derivatives Director Andy Du.

Chinese prices of spot copper were trading at a discount of 150 yuan per tonne to the ShFE front-month October contract by the session close, pointing to still weak consumer demand. Spot aluminium, zinc and lead were also trading lower than their Shanghai front-month futures.

Soldering material tin ended at $22,100, down from Friday's close of $22,400, with the premium for cash tin easing versus the benchmark price, indicating nearby supplies are improving.

Zinc - used in galvanizing - ended at $2,035, from $2,075, having earlier touched its lowest since mid-September at $2,034.

Battery material lead ended at $2,260 a tonne, from $2,288 a tonne on Friday, despite a large drop in LME lead stocks of 3,225 tonnes, bringing closing stocks to a paltry 251,350 tonnes.

Aluminium slipped to $2,081.75 from $2,100, earlier touching its lowest in more than a week at $2,071.

Stainless-steel ingredient nickel was untraded in rings, but bid at $18,070 from Friday's close of $18,300. It earlier hit its lowest level in more than a week at $17,950.

(Editing by Keiron Henderson and James Jukwey)

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