Fundamentals Push Copper Lower

LONDON, Aug. 18 -- Copper eased on Monday as concerns over the economic recovery caused industrial metals to pull back, with investors still uncertain over the demand outlook against a backdrop of weak fundamentals.

    By 0929 GMT, copper for three-month delivery MCU3 on the London Metal Exchange fell to $6,024 a tonne from $6,240 at the close on Friday and compared with a session low at $6,000.

    A weaker-than-expected report from the Reuters/University of Michigan Survey of Consumers ignited cross-market selling late on Friday.

    Adding to the negative sentiment, equity markets fell on Monday after data showing Japan's economy became the third G7 country after Germany and France to pull out of recession, failed to impress investors.

    "It's a continuation from Friday," said Gayle Berry, an analyst at Barclays Capital. "This is the trend we've been seeing in recent months -- a week or so of very strong gains and then a pullback.

    "It was to be expected. It doesn't mark the beginning of a turnaround ... the market is still positive for the outlook for the second half."

    Prices of the red metal, used in power and construction, fell more than 3% on Friday, as U.S. consumer data suggested a global economic recovery may be slow.

    Highlighting weak fundamentals for industrial metals, copper stocks rose 1,175 tonnes to 294,050 tonnes.

    Looking ahead, Berry added that labour contract negotiations in the coming months will be keenly watched by investors.

    Analysts estimate about 70% of stocks in LME warehouses are tied up in such deals until next May.

    MIXED PICTURE

    "The speed of recovery in base metals prices has caught many in the market by surprise," said Societe Generale in a note. "While there has been a modest improvement in the fundamental picture for most metals, the picture is still somewhat mixed."

    "China remains the key focus for metal demand recovery, driven by the infrastructure focused fiscal stimulus plan, but demand in the world ex-China remains largely subdued at best."

    Chinese stockbuilding and improving economic data has boosted base metal prices this year, but with the summer lull in full swing, analysts predict price corrections this quarter.

    Looking ahead, the market is expected to turn to New York factory data for August at 1230 GMT and a raft of housing data due later on Monday and on Tuesday for further direction.

    (Source: Reuters)