METALS-China, Debt Worries Push Copper to 2-Month Low-Shanghai Metals Market

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METALS-China, Debt Worries Push Copper to 2-Month Low

Industry News 09:24:23AM May 05, 2010 Source:SMM

NEW YORK/LONDON, May 4 (Reuters) - Copper tumbled to two-month lows under $7,000 a tonne on Tuesday as China's monetary tightening sparked demand fears and a global equities sell-off prompted investors to dump industrial metals due to liquidity concerns.

Sister metals zinc and lead hit multi-month lows, falling more than 6 percent, against the backdrop of the fall in copper and rising London Metal Exchange inventories. Nickel also sank more than 6 percent as stocks increased.

The S&P 500 .SPX index fell 2.5 percent.

"You have the belt tightening in China and it looks like this is going to continue as concerns about their property bubble are developing elsewhere," said Sterling Smith, a senior analyst at Minnesota-based brokerage Country Hedging Inc.

"China is one of the main drivers of keeping copper prices up where they are. If the Chinese are not buying, you're going to be able to build surplus very quickly, prices are going to be vulnerable to downside moves."

Earlier this week, China -- the world's largest copper consumer -- raised the proportion of deposits that lenders must keep in reserve at the central bank, another step in its months-old campaign to remove excess cash from the economy at a time when inflation is on the rise.

Benchmark copper CMCU3 on the London Metal Exchange closed at $7,030 a tonne in kerb trading from $7,430 on Friday, having earlier touched $6,998, its lowest since Feb. 25.

Copper posted its biggest one-day percentage fall -- about 5 percent -- since June 23, 2009, on the LME's electronic trading system Select MCU3=LX. It has also broken through the 100-day moving average of $7,330.

The euro tumbled to a one-year low against the dollar on Tuesday on fears aid for Greece may not prevent debt crises in other euro zone countries. A stronger dollar makes dollar-priced metals costly for non-U.S. buyers. [USD/]

"People are very scared about the impact of potential contagion from Greece. If it's inflationary, commodities should go up (but) at the moment, the deflation camp is winning the argument," said Lars Steffensen, managing director at UK fund Ebullio.

Data out overnight showed HSBC's China Purchasing Managers' Index (PMI) dropped in April to a six-month low of 55.4 from 57.0 in March as output, putting further pressure on copper.

"Copper is still up 100 pct year on year, if we are heading into a period with tighter monetary policy in China then we might see some further corrections," said Martin Vorgod, a trader at Danske Bank.

On Tuesday, July copper's relative strength index (RSI) on a 14-day basis fell below 30, traditionally seen as oversold, technical analysts said.

U.S. July copper futures HGN0 settled down 11.50 cents, or 3.5 percent, at $3.1785 an ounce.

STRONG WAREHOUSE DATA
On the plus side, there is a longer-term trend of falling stocks in LME warehouses for some metals. Copper stocks are down more than 58,000 tonnes since the middle of February to 496,975 tonnes, while aluminum stocks are down 111,200 tonnes since hitting a record high above 4.640 million tonnes on Jan. 21.

Aluminum CMAL3, used in transport and packaging, ended at $2,165 a tonne from $2,255 a tonne on Friday and zinc CMZN3 at $2,148 a tonne from $2,282.

Earlier zinc hit $2,141, a level not seen since late February. Zinc prices are under pressure from rising stocks, which at 559,475 tonnes are the highest since August 2005.

Battery material lead CMPB3 ended at $2,060 a tonne in kerb trading from $2,230 on Friday, having earlier hit $2,067.25 on Select, its lowest since late March.

Tin CMSN3 ended at $17,850 a tonne from $18,200 and stainless steel material nickel CMNI3 ended at $24,650 from $26,300, having earlier hit $24,500, it's lowest since early
April.
 

METALS-China, Debt Worries Push Copper to 2-Month Low

Industry News 09:24:23AM May 05, 2010 Source:SMM

NEW YORK/LONDON, May 4 (Reuters) - Copper tumbled to two-month lows under $7,000 a tonne on Tuesday as China's monetary tightening sparked demand fears and a global equities sell-off prompted investors to dump industrial metals due to liquidity concerns.

Sister metals zinc and lead hit multi-month lows, falling more than 6 percent, against the backdrop of the fall in copper and rising London Metal Exchange inventories. Nickel also sank more than 6 percent as stocks increased.

The S&P 500 .SPX index fell 2.5 percent.

"You have the belt tightening in China and it looks like this is going to continue as concerns about their property bubble are developing elsewhere," said Sterling Smith, a senior analyst at Minnesota-based brokerage Country Hedging Inc.

"China is one of the main drivers of keeping copper prices up where they are. If the Chinese are not buying, you're going to be able to build surplus very quickly, prices are going to be vulnerable to downside moves."

Earlier this week, China -- the world's largest copper consumer -- raised the proportion of deposits that lenders must keep in reserve at the central bank, another step in its months-old campaign to remove excess cash from the economy at a time when inflation is on the rise.

Benchmark copper CMCU3 on the London Metal Exchange closed at $7,030 a tonne in kerb trading from $7,430 on Friday, having earlier touched $6,998, its lowest since Feb. 25.

Copper posted its biggest one-day percentage fall -- about 5 percent -- since June 23, 2009, on the LME's electronic trading system Select MCU3=LX. It has also broken through the 100-day moving average of $7,330.

The euro tumbled to a one-year low against the dollar on Tuesday on fears aid for Greece may not prevent debt crises in other euro zone countries. A stronger dollar makes dollar-priced metals costly for non-U.S. buyers. [USD/]

"People are very scared about the impact of potential contagion from Greece. If it's inflationary, commodities should go up (but) at the moment, the deflation camp is winning the argument," said Lars Steffensen, managing director at UK fund Ebullio.

Data out overnight showed HSBC's China Purchasing Managers' Index (PMI) dropped in April to a six-month low of 55.4 from 57.0 in March as output, putting further pressure on copper.

"Copper is still up 100 pct year on year, if we are heading into a period with tighter monetary policy in China then we might see some further corrections," said Martin Vorgod, a trader at Danske Bank.

On Tuesday, July copper's relative strength index (RSI) on a 14-day basis fell below 30, traditionally seen as oversold, technical analysts said.

U.S. July copper futures HGN0 settled down 11.50 cents, or 3.5 percent, at $3.1785 an ounce.

STRONG WAREHOUSE DATA
On the plus side, there is a longer-term trend of falling stocks in LME warehouses for some metals. Copper stocks are down more than 58,000 tonnes since the middle of February to 496,975 tonnes, while aluminum stocks are down 111,200 tonnes since hitting a record high above 4.640 million tonnes on Jan. 21.

Aluminum CMAL3, used in transport and packaging, ended at $2,165 a tonne from $2,255 a tonne on Friday and zinc CMZN3 at $2,148 a tonne from $2,282.

Earlier zinc hit $2,141, a level not seen since late February. Zinc prices are under pressure from rising stocks, which at 559,475 tonnes are the highest since August 2005.

Battery material lead CMPB3 ended at $2,060 a tonne in kerb trading from $2,230 on Friday, having earlier hit $2,067.25 on Select, its lowest since late March.

Tin CMSN3 ended at $17,850 a tonne from $18,200 and stainless steel material nickel CMNI3 ended at $24,650 from $26,300, having earlier hit $24,500, it's lowest since early
April.