Copper falls on demand concerns, China data

Wednesday, 22 February 2012 19:02

LONDON: Copper prices fell on Wednesday, reversing the previous session's sharp gains, with confidence rattled by weak export data from top consumer China and doubt over Greece's ability to implement tough reforms aimed at cutting its debt.

Benchmark copper on the London Metal Exchange (LME) was untraded in official rings, but was bid at $8,409 a tonne, from Tuesday's close of $8,449 a tonne.

Copper has gained more than 11 percent this year, partly buoyed by hopes demand from China - which consumes 40 percent of the world's copper - would pick up after the Lunar New Year in January. But demand from the commodity consuming giant has remained slack, raising worry prices could retreat sharply.

Highlighting those concerns were preliminary data showing China's new export orders shrank in February, compared with expectations for a pick up after the holidays and a worrying sign of the impact of the euro area debt crisis.

"Chinese companies have been slow to pick up operations after the holidays and there is a lack of physical demand. We need a more clear and positive steer from the authorities as to where the demand is going to come from this year," said Nic Brown, head of commodity research at Natixis.

"Whether you look at export prospects for Chinese goods, or the car market or the PMIs, (Purchasing Managers' Index) it's not a pretty picture. And if against that backdrop you have high and rising input costs this is terrible."

Adding to downbeat sentiment, the euro zone's service sector shrank unexpectedly this month, reviving fears that the economy risks sinking into recession, a business survey showed.

While Greece's 130-billion euros financing deal helped ease fears of an immediate default, the country's economic outlook remained anything but rosy, a problem that could yet derail its efforts to meet tough cost-cutting measures.

The dollar rose against the euro and a basket of currencies, adding pressure to commodities, which are priced in the US unit.

"The metals complex was a little overbought in January with many now choosing to close these longs as evident from the open interest across the board," VTB Capital analysts said in a note.

Goldman Sachs said it was lowering its 12-month commodity returns forecast to 12 percent from 15 percent, saying key commodities had rallied substantially heading into 2012.

"However, these returns continue to justify an overweight allocation to commodities relative to other assets in a standard portfolio," analysts at Goldman Sachs said.

IMPORTS SEEN WEAK

Highlighting thin demand in China, copper stocks in Shanghai warehouses hit their highest level in nearly a decade last week and analysts warned the country's imports were likely to remain weak until March.

"Copper prices are likely to remain rangebound in the short term, before we see any improvement in demand," said a Shanghai-based trader.

"But in the medium term, copper has a chance to break higher, with seasonal demand picking up and liquidity in China increasing."

In industry news, the world's No. 3 copper mine, Chile's Collahuasi, resumed mining operations after halting them following the death of a worker, a spokeswoman said on Wednesday.

Meanwhile, expectations of a global copper production deficit are supporting prices but it is unclear when demand will rise, Germany's Aurubis, Europe's biggest copper producer, said.

Aluminium was almost flat and traded at $2,252 a tonne in official rings from Tuesday's close of $2,255 a tonne.

Rio Tinto Alcan is asking Japanese buyers to increase the premium they pay on primary aluminium shipments to $132 per tonne for the April-June quarter, two sources involved in informal talks between the two sides said on Wednesday.

Zinc, untraded in rings, was bid at $2,029 a tonne from Tuesday's close of $2,028 while lead was bid at $2,100 from $2,117 a tonne.

Tin, also untraded in rings, was bid at $23,950 from Tuesday's close of $24,190 while nickel traded at $20,155 from $20,230.