Copper dips as demand fears offset stocks fall

LONDON - Copper dipped slightly in early trade to remain near a two-week lows on Friday, as a fall in inventories offset persistent worries over demand and talk of Chinese buying tailing off.


By 0941 GMT, copper for three month delivery on the London Metal Exchange fell to $4,330 (U.S.) a tonne from $4,342 at the close on Thursday and compared with a session low at $4,270.


"We are seeing a jostling between bullish and bearish factors," said Gayle Berry, an analyst at Barclays Capital. "On the bullish side, strong Chinese import data ... but on the bearish side, global macro sentiment has turned down a little bit."


"The result is that prices are confused for direction."


Copper, used in power and construction, has climbed about 40 per cent this year, as a recent rise in cancelled warrants - material earmarked for delivery - helped buoy sentiment.


However, there is now talk that such stock drawdowns could be ending.


On Thursday, cancelled warrants were at 65,800 tonnes from 69,175 tonnes the day before. With copper LME stocks falling 10,925 tonnes to 429,550 tonnes, cancelled warrants represent 16 per cent of total LME inventories.


Adding to underlying macro gloom however, Japan's output of rolled copper products fell by a record 60 per cent from a year earlier in March, data showed on Friday, illustrating the sharp collapse in industrial demand from the world's fourth-biggest consumer.


Aluminum, used in transport and packaging, fell $2 to $1,446. LME stocks jumped 15,175 tonnes to a new record of 3.69 million tonnes.


On Thursday, aluminum cancelled warrants were 58,300 tonnes compared with 62,250 the day before.


A weak U.S. currency, which makes metals priced in dollars less expensive for holders of other currencies, offered some support but investors remained concerned about the demand outlook.


"For the time being there is no sign of it changing", said Michael Khosrowpour, an analyst at Triland Metals. "I've been hearing about cutbacks here and there but it is yet to have any kind of impact on the market."


"It just doesn't look like it's going to stop any time soon - it's relentless."


A lot of cancelled warrants on aluminum stocks were for Asian warehouses but doubts remained as to how much buying is due to genuine demand or merely stockpiling. Short position - bets on lower prices - covering indicate that traders and investors think demand may be reaching a bottom. Open interest lots climbed to over 742,927 on Thursday from 746,262 the day before.


Steel making ingredient nickel traded at $11,052 from $11,350 while zinc dropped to $1,393 a tonne from $1,417.


On Thursday, zinc cancelled warrants were 30,975 tonnes compared with 27,750 the day before, with LME stocks now at 340,500 tonnes.


Battery material lead was at $1,396 from $1,460 and tin slipped to $12,400 from $12,500.


Both tin and lead are in front-month backwardation, and both feature dominant long-position holders.


In lead, one entity has cash and stock positions accounting for over 90 per cent of available LME inventory, while in tin there were two dominant position holders in both the 40-50 per cent and 80-90 per cent categories.


Adding to lead's downside, LME stocks rose 8,075 tonnes to 71,725 tonnes - its highest level since mid-September.


"Over the past week or so, we've seen quite a significant turnaround in the inventory trend for lead," said Barclays' Berry. "We are now in the seasonally weakest period for lead consumption."