Copper Slides as Supply Expands, Prices Fail to Reflect Demand

LONDON, Aug. 18 -- Copper fell for the second straight session as inventories expanded and concerns mounted that a near doubling in prices since January no longer reflects the demand outlook.

    Stockpiles monitored by the London Metal Exchange gained 11 percent the past month. Direct foreign investment in China, the world's biggest copper user, fell for a 10th month in July. U.S. consumer confidence unexpectedly declined this month, data on Aug. 14 showed.

    "Base-metal prices are overshooting fundamentally justified levels," Tobias Merath, the head of commodity research at Credit Suisse Group AG in Zurich, said in a report. "Investors who think about buying base metals should wait for a better opportunity."

    Copper futures for December delivery slid 6.55 cents, or 2.3 percent, to $2.7855 a pound on the Comex division of the New York Mercantile Exchange. On Aug. 14, the price reached $2.96, the highest since Sept. 29.

    Copper for delivery in three months fell 3.1 percent to $6,050 a metric ton ($2.74 a pound) on the LME. Aluminum, nickel, zinc, tin and lead also fell in London.

    The LMEX index of the six metals rose 0.1 percent last week after jumping 27 percent in the four weeks ended Aug. 7. The gauge slumped 49 percent last year.

    China's Imports

    China's copper imports declined 15 percent in July from a month earlier, according to the Beijing-based customs office. The nation's commodity imports should weaken in the second half, Ben Simpfendorfer of Royal Bank of Scotland Group Plc said in a report.

    "Nonetheless, the risks to base-metal prices are limited as the market consensus is already pricing in weaker imports," Simpfendorfer said. "We prefer copper and zinc to aluminum and nickel on supply-side constraints."

    The decline in base-metal prices is "a temporary pullback," Barclays Capital in London said.

    "A lot of base-metal mining labor contracts are up for renegotiation in the second half," John Reade, UBS AG's head metals strategist in London, said in a note. Markets "with genuine or potential tightness may see prices supported by strike action, much in the way that nickel is benefiting from Canadian work stoppages."

    Nickel fell 2.4 percent to $19,100 a ton today. Before today, open interest, or the number of outstanding contracts, rose 39 percent this year to 109,417, the most since at least Nov. 3, 2005.

    (Source: Bloomberg)