========================

LONDON

Copper disheartened by meagre inventories drop

RTGAM

LONDON - Copper edged lower on Tuesday, retreating from a four-month high as a meagre decline in stocks indicated recent falls may not be sustained.

Copper for three-month delivery at the London Metal Exchange fell to $3,825 (U.S.) a tonne at 1028 GMT, versus Monday's close of $3,830. The metal used in power and construction earlier hit $3,862, its highest since mid-November.


Stocks of copper at LME warehouses edged down a mere 325 tonnes, following a recent bout of hefty declines that has improved the demand outlook. Inventories have tumbled more than 50,000 tonnes since late February.


"It's the stocks data," Robin Bhar, metals analyst at Calyon, said of the fall in copper prices. "It shows a slowdown in draws... Normally we have thousands of tonnes falling.


"(And) cancelled warrants are down, that implies there is less metal destined to flow out of warehouses," he added.


Cancelled warrants - material earmarked for delivery - stood at 22,475 tonnes from 26,750 tonnes the day before.


Analysts recently warned stocks leaving LME warehouses were likely just being stock-piled by China while prices were low, and that the trend of inventories declines does not necessarily point to a pick up in consumption.


Barclays Capital said in a note that the rate of decline in China's exports was likely to moderate in the coming months, while spending on new projects soared in the early months of the year. These signs suggested Chinese fiscal stimulus was beginning to feed through to the bottom line, the note said.


"There is strong momentum in the market, backed up by some macro data coming out of China, pointing to some positive signs from leading indicators for the Chinese economy," said Yingxi Yu, analyst at Barclays Capital in Singapore.


"We don't believe the declines in copper stocks will last much longer."

Australian miner Rio Tinto said demand for metals and minerals would improve rapidly once economic activity recovers, driven by a sharp recovery in Chinese demand.

A decline in stock markets also dented sentiment in the industrial metals sector.

European shares snapped a five-day winning streak as banks declined after data showed an increase in U.S. credit card defaults and oil majors tracked a fall in crude.

"We've broken the string of up days on stock markets so this might induce a bit of caution," Mr. Bhar said.


Signalling bleak metals demand in a recession-hit global economy, stocks of aluminum scaled new highs, up by 5,475 tonnes to nearly 3.4 million tonnes.


"Fundamentals on the aluminum market remain very poor, as smelters have still not removed structural overcapacities," BNP Paribas said in a note. "(That raises) the risk of potentially severe supply overhangs in the coming years.


"Some market participants have become apprehensive that storage capacity may be tested."

LME aluminum, used in transport and packaging, was at $1,371 a tonne from $1,358.


Reflecting pressures in the industry, aluminum producer Alcoa Inc. said on Monday it will slash its dividend, issue stock and trim its 2010 spending to help weather the steep downturn in aluminum demand.


Among other industrial metals, zinc was at $1,259 a tonne from $1,249. Stocks of the metal, used to galvanize steel, rose by 4,250 tonnes.


Steel making ingredient nickel was at $10,250 from $10,075, while battery material lead, which rose to a fourth-month high of $1,335 a tonne, was at $1,330 from $1,296. Tin was at $10,375 from $10,350.