Copper Falls on Risk Aversion, China Demand Worry

LONDON, July 30 -- Copper fell to its lowest in a week on Wednesday as the dollar firmed on rising risk aversion and investors focused on fears of reduced Chinese imports.

    Copper for three-months delivery on the London Metal Exchange traded at $5,417.50 a tonne at 0923 GMT from a close of $5,530 on Tuesday.

    Prices of the metal used in power and construction hit a day's low of $5,395, down sharply from a 10-month high of $5,646 hit on Monday. Asian shares tumbled from multi-month peaks while the dollar gained broadly as riskier assets succumbed to profit-taking after a recent strong rally.

    "A softening of risk appetite has turned market focus to concerns about oversupply in China and rising stockpiles," said Daniel Major, an analyst at RBS Global Banking and Markets.

    "Record Chinese imports have been a key driving factor for impressive gains in metals thus far and I think the market is just feeling a bit cautious on some of this material that's moved into China."

    Fears China may restrict lending in the second half, leading to a possible liquidity squeeze, sent base metals in Shanghai down to levels just shy of their daily limits.

    Record Chinese imports had propelled copper prices up around 80 percent this year, but analysts expect imports will slow going forward as China is now fully stocked with metal.

    Investors are awaiting U.S. durable goods data for further clues as to how the world's largest economy might drive industrial metals demand going forward.

    On Tuesday, data showing U.S. consumer confidence declined for a second straight month snapped a two week rally in industrial metals and dashed hopes for an economic recovery.

    "These markets have been due a consolidation period after almost two straight weeks of gains. As we draw towards a month end, during which US Q2 GDP will be announced, the likelihood that more of the new short term longs liquidate is 'high'," said RBC Capital Markets in a note.

    MORE COPPER STOCKS AVAILABLE

    Latest data showed stocks of copper in LME warehouses fell 575 tonnes to total 278,350 tonnes. However, cancelled warrants - material tagged for delivery out of warehouses - fell by 1,825 tonnes, meaning more material is available.

    LME stocks have been rising consistently since mid-July, although they remain well short of levels around 500,000 tonnes seen in February. Analysts fear the stock rise will widen if Chinese imports slow.

    Among other industrial metals, aluminium was at $1,810 from $1,824 tonnes on Tuesday. Stocks of the metal used in transport and packaging fell 3,225 tonnes but remained at record levels near 4.6 million tonnes.

    High aluminium stock levels are failing to weigh heavily on aluminium as a lot of material is tied up in financing deals with banks.

    Bucking the trend, tin was flat at $14,100 a tonne. The metal traded at at a premium of $280-300 for cash material over the benchmark 3 month price. This compares to a discount of $40 for cash tin in mid-June.

    Traders remain concerned about the scale of long positions to buy tin compared with the amount of available metal in LME warehouses. Galvanising metal zinc was at $1,651 from $1,690, battery material lead was at $1,756 from $1,767 while steel-making ingredient nickel was at $16,400 from $16,630.

    (Source: Reuters)