Chile mine supports copper but US debt talks eyed

LONDON: Copper edged higher on Thursday on supply worries following a declaration of force majeure by the world's biggest copper mine, however concerns over debt issues in the United States and Europe were expected to put a ceiling on prices.

Three-month copper on the London Metal Exchange traded at $9,798.75 a tonne by 0846 GMT from a close of $9,780 on Wednesday.

"We'll have a situation where sure Escondida is going to tighten supplies but if the macro concerns undermine demand, one offsets the other," Credit Agricole analyst Robin Bhar said.

"It's pretty much a wait and see situation at the moment - obviously there's a lot at stake if we don't get the (US) debt talks successfully concluded by early next week."

Chile's Escondida copper mine on Wednesday, which extracts 7 percent of the world's copper, declared force majeure on copper concentrate sales amid a six-day strike that has hit output at the world's top deposit.

A prolonged strike at Escondida could push a global shortfall of copper concentrate deeper into deficit this year, driving smelting and refining charges lower.

Failure to reach accord soon at Escondida could have implications for copper prices, which hit a record high of $10,190 a tonne in February on the prospect of a shortfall in supply this year.

"Output losses from the mine already amount to over 12kt - over half a day's Chinese consumption (of around 21kt) - exacerbating concerns over an expected deficit in the copper market," ANZ said in a note.

A bill to cut the US deficit faced a nail-bitingly close vote in Congress on Thursday as the top Republican lawmaker sought to quell an internal revolt and push his plan to avoid a ruinous default.

Approval of a plan by House of Representatives Speaker John Boehner would break the inertia in Washington over a US debt crisis that has spooked markets and raised the prospect that the government of the world's largest economy will run out of money to pay its bills in less than a week.

In Europe, contrasting statements by euro zone politicians to domestic audiences have underlined the fragility of last week's deal to rescue Greece and unsettled financial markets already on edge because of the US debt impasse.

COPPER STOCKS FALL

Japan's refined copper exports fell 39 percent in June from a year earlier to 27,486 tonnes, for a ninth straight month of year-on-year declines, although the pace slowed from May's 52 percent drop, Ministry of Finance data showed. Copper stocks at LME warehouses fell 1,450 tonnes to 468,350 tonnes , latest data showed. Inventories were still over a third higher than in December last year.

Aluminium stocks rose 92,425 tonnes to 4,461,425 tonnes. They have been steadily falling since hitting a record high of 4.71 million tonnes in May.

Aluminium was flat at $2,644 a tonne. Tin was at $28,900 from $28,745 while zinc , used in galvanizing was at $2,519.50 from $2,521 a tonne.

Japan's refined zinc exports for June halved from a year earlier to 4,707 tonnes, data showed, as production remained disrupted by the earthquake in March.

Battery material lead was at $2,697 from $2,690 a tonne and nickel, which hit its highest since mid-May at $24,690 a tonne, traded at $24,590 from $24,395 a tonne.

Copyright Reuters, 2011