METALS-Copper Crumbles Under Weight of Oil, Slowing China-Shanghai Metals Market

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METALS-Copper Crumbles Under Weight of Oil, Slowing China

Industry News 09:50:43AM Mar 08, 2011 Source:SMM

NEW YORK/LONDON, March 7 (Reuters) - Copper suffered its biggest one-day decline in nearly four months on Monday, as rising oil prices and geopolitical instability fanned recovery doubts.

Chinese measures to tackle inflationary pressures also dimmed demand prospects.

"It's kind of a one-two punch," said Michael Gross, futures analyst with Optionsellers.com in Tampa, Florida.

The crisis in Libya and the prospects of further unrest in oil-rich Middle Eastern countries kept oil prices buoyant near 2-1/2-year highs and inflation concerns at a high, causing another wave of risk reduction across the base complex. [O/R]

"There is risk concern, and base metals, typically being seen at the risky end of the spectrum, are being sold," Societe Generale analyst David Wilson said.

London Metal Exchange (LME) three-month copper CMCU3 dropped $396 or 4 percent to close at $9,499 a tonne in its biggest daily fall since mid-November 2010.

Prices were pegged 7 percent off from the Feb. 15 record at $10,190.

COMEX copper for May delivery HGK1 tumbled 15.85 cents, or 3.5 percent to settle at $4.3270 per lb.

Technical liquidation was also at play, Optionsellers.com's Gross said, with a potential market top beginning to take its shape.

"It's almost looking like a textbook head-and-shoulders top formation," he said. "We have to take out the $4.25 level first before that is confirmed."

With the cost of food and energy on the rise, mounting inflationary pressures were hitting emerging world and developing world economies alike.

That threat would likely keep Chinese tightening measures in place and metals demand at a slower pace.

China is seen continuing to drive copper demand, but Beijing's fight with stubborn inflation will add to the price volatility, said the chief executive of Chile's Codelco, the world's largest copper producer.

"When you put in all of these measures to restrict credit and you're trying to slow down construction and slow down growth, copper is just simply an indicator of that," said Howard Simons, strategist at Bianco Research Group in Chicago.

"When you take the largest buyer out, you affect price."

China accounts for 40 percent of the world's copper demand.

A steadier dollar also weighed on industrial metals.

After rising for four straight days, the euro fell from the day's high and traded little changed against the dollar. A stronger dollar makes commodities priced in the U.S. currency more expensive for holders of alternative currencies. [USD/]

INVENTORIES RISE

Copper stocks continued to build, rising 1,850 tonnes to 427,150 tonnes, the highest level since July 2010, data released on Monday showed. MCU-STOCKS

Inventories of copper have climbed by about 20 percent since December, raising some concerns about waning demand.

With that bearish inventory trend in place, the copper curve stood at a $10.00 contango -- a discount for cash versus three-month material MCU0-3 -- from a $70 backwardation, or the premium for cash over three-month material, in mid-December.

Zinc inventories also continued to increase, up by 6,300 tonnes to 725,525 tonnes, the highest level since November 2004. MZN-STOCKS

"The zinc stocks inflows in the last few days is an indication of a market that is well oversupplied with potential further downside," said Daniel Major, an analyst at RBS. "Zinc has got the weakest fundamentals in the industrial metals complex."

Zinc CMZN3 closed down $91 at $2,370 a tonne.

Metal Prices at 1937 GMT
 COMEX copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T
 Metal            Last      Change  Pct Move   End 2010   Ytd Pct
                                                         move
 COMEX Cu       434.15      -14.40     -3.21     444.70     -2.37
 LME Alum      2557.00      -43.00     -1.65    2470.00      3.52
 LME Cu        9498.00     -397.00     -4.01    9600.00     -1.06
 LME Lead      2579.00      -51.00     -1.94    2550.00      1.14
 LME Nickel   27450.00    -1350.00     -4.69   24750.00     10.91
 LME Tin      30700.00    -1150.00     -3.61   26900.00     14.13
 LME Zinc      2368.00      -93.00     -3.78    2454.00     -3.50
 SHFE Alu     16875.00     -115.00     -0.68   16840.00      0.21
 SHFE Cu*     74200.00     -520.00     -0.70   71850.00      3.27
 SHFE Zin     18860.00     -410.00     -2.13   19475.00     -3.16
 

METALS-Copper Crumbles Under Weight of Oil, Slowing China

Industry News 09:50:43AM Mar 08, 2011 Source:SMM

NEW YORK/LONDON, March 7 (Reuters) - Copper suffered its biggest one-day decline in nearly four months on Monday, as rising oil prices and geopolitical instability fanned recovery doubts.

Chinese measures to tackle inflationary pressures also dimmed demand prospects.

"It's kind of a one-two punch," said Michael Gross, futures analyst with Optionsellers.com in Tampa, Florida.

The crisis in Libya and the prospects of further unrest in oil-rich Middle Eastern countries kept oil prices buoyant near 2-1/2-year highs and inflation concerns at a high, causing another wave of risk reduction across the base complex. [O/R]

"There is risk concern, and base metals, typically being seen at the risky end of the spectrum, are being sold," Societe Generale analyst David Wilson said.

London Metal Exchange (LME) three-month copper CMCU3 dropped $396 or 4 percent to close at $9,499 a tonne in its biggest daily fall since mid-November 2010.

Prices were pegged 7 percent off from the Feb. 15 record at $10,190.

COMEX copper for May delivery HGK1 tumbled 15.85 cents, or 3.5 percent to settle at $4.3270 per lb.

Technical liquidation was also at play, Optionsellers.com's Gross said, with a potential market top beginning to take its shape.

"It's almost looking like a textbook head-and-shoulders top formation," he said. "We have to take out the $4.25 level first before that is confirmed."

With the cost of food and energy on the rise, mounting inflationary pressures were hitting emerging world and developing world economies alike.

That threat would likely keep Chinese tightening measures in place and metals demand at a slower pace.

China is seen continuing to drive copper demand, but Beijing's fight with stubborn inflation will add to the price volatility, said the chief executive of Chile's Codelco, the world's largest copper producer.

"When you put in all of these measures to restrict credit and you're trying to slow down construction and slow down growth, copper is just simply an indicator of that," said Howard Simons, strategist at Bianco Research Group in Chicago.

"When you take the largest buyer out, you affect price."

China accounts for 40 percent of the world's copper demand.

A steadier dollar also weighed on industrial metals.

After rising for four straight days, the euro fell from the day's high and traded little changed against the dollar. A stronger dollar makes commodities priced in the U.S. currency more expensive for holders of alternative currencies. [USD/]

INVENTORIES RISE

Copper stocks continued to build, rising 1,850 tonnes to 427,150 tonnes, the highest level since July 2010, data released on Monday showed. MCU-STOCKS

Inventories of copper have climbed by about 20 percent since December, raising some concerns about waning demand.

With that bearish inventory trend in place, the copper curve stood at a $10.00 contango -- a discount for cash versus three-month material MCU0-3 -- from a $70 backwardation, or the premium for cash over three-month material, in mid-December.

Zinc inventories also continued to increase, up by 6,300 tonnes to 725,525 tonnes, the highest level since November 2004. MZN-STOCKS

"The zinc stocks inflows in the last few days is an indication of a market that is well oversupplied with potential further downside," said Daniel Major, an analyst at RBS. "Zinc has got the weakest fundamentals in the industrial metals complex."

Zinc CMZN3 closed down $91 at $2,370 a tonne.

Metal Prices at 1937 GMT
 COMEX copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T
 Metal            Last      Change  Pct Move   End 2010   Ytd Pct
                                                         move
 COMEX Cu       434.15      -14.40     -3.21     444.70     -2.37
 LME Alum      2557.00      -43.00     -1.65    2470.00      3.52
 LME Cu        9498.00     -397.00     -4.01    9600.00     -1.06
 LME Lead      2579.00      -51.00     -1.94    2550.00      1.14
 LME Nickel   27450.00    -1350.00     -4.69   24750.00     10.91
 LME Tin      30700.00    -1150.00     -3.61   26900.00     14.13
 LME Zinc      2368.00      -93.00     -3.78    2454.00     -3.50
 SHFE Alu     16875.00     -115.00     -0.68   16840.00      0.21
 SHFE Cu*     74200.00     -520.00     -0.70   71850.00      3.27
 SHFE Zin     18860.00     -410.00     -2.13   19475.00     -3.16