Michael Taylor

Friday, June 12, 2009

LONDON — Copper fell more than 2 per cent on Friday, as U.S. dollar strength, lingering economic worries and concerns over real demand dented sentiment for base metals.

The dollar regained some poise after falling the previous day. A strong U.S. currency makes metals priced in dollars more expensive for holders of other currencies.

By 1019 GMT, copper for three month delivery on the London Metal Exchange fell to $5,265 a tonne from $5,380 at the close on Thursday and compared with a session low at $5,240.

As markets try to assess the possible timing of a global economic recovery, many analysts see little improvement in underlying demand fundamentals for most base metals.

Copper, used in power and construction, has risen by more than 70 per cent this year, as a combination of improved economic data and Chinese stockpiling, supported prices.

“Further gains will be much harder in the very short term, however, the global recovery seems on track and metals should pick up through the second half of 2009 and 2010,” said Citigroup analyst David Thurtell.

On Thursday copper, rose to $5,388 a tonne, its highest since mid-October and although taking a breather on Friday, analysts remained relatively upbeat.

The improvement in investor sentiment has been aided by stabilisation in some key economic data.

Figures released earlier this week showed the first gain in three months in U.S. retail sales and a drop in new jobless claims.

China's annual industrial growth, rebounded to 8.9 per cent in May against forecasts of 7.5 per cent.

Aluminum, used in transport and packaging, fell $15 to $1,678 but has gained more than 15 per cent this month, following a rise in cancelled warrants.

The gains in cancelled warrants – material already earmarked for delivery on stocks in LME warehouses – indicates material heading for Chinese stockpiles, analysts say.

On Thursday, cancelled warrants were at 127,775 tonnes – its highest since March 2005 – from 45,700 tonnes on May 11, while LME aluminum inventories fell 3,025 tonnes to 4.2 million tonnes, still staying near record highs.

But a slowdown in Chinese copper stockpiling efforts saw red metal cancelled warrants at 24,725 from 74,500 tonnes a month earlier.

Giving weight to the theory of a stockpiling switch from copper to aluminum, copper inventories in warehouses monitored by the Shanghai Futures Exchange rose 33 per cent from a week earlier, while aluminum inventories fell 7.6 per cent.

“Although Chinese demand is strong, the rest of the world is still struggling with a global recession so we would not be surprised if prices pull back from current levels,” said investment bank Fairfax in a note.

“However, investment demand has been heading into commodities for their appeal as an inflation hedge.”

Among other metals fell from multi-month highs hit in the previous session, as steel making ingredient nickel traded at $15,539 from $15,800 while battery material lead was at $1,788 from $1,819.

Zinc dropped to $1,697 a tonne from $1,720 and tin edged down to $15,530 from $15,750.

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