Copper falls on fears of economic slowdown

LONDON: Copper traded at its lowest in more than a week on Monday after a historic low reading for China's services sector index and a disappointing US jobs report last week stoked concerns of a slowdown in global economic growth.

Benchmark copper on the London Metal Exchange closed down 1.3 percent at $8,960 a tonne from $9,076 on Friday. The metal, used in power and construction, hit its lowest level since Aug. 25 at $8,916 a tonne.

"After the awfulness of the US employment numbers on Friday it's not surprising that everyone has taken a step back," said analyst Nic Brown of Natixis.

"Europe is not getting any better. I guess we'll have to wait a day or two until we reach the near term bottom, and see how things develop from there."

Growing unease about global recovery prospects hit demand for riskier assets such as equities, which fell sharply in Europe, while the dollar rose to a one-month high against a basket of currencies after higher-yielding currencies were also caught-up in the market's risk aversion.

A stronger dollar makes commodities priced in the US unit more expensive for holders of other currencies.

Latest data from China showed the country's fledging services sector grew in August at its lowest pace on record, adding to concern about the pace of economic growth in the world's larger economies. This followed a weak labour market report from the United States on Friday, which showed employment growth ground to a halt in August.

Some price support came from the supply side, where workers at Peru's No. 3 copper mine Cerro Verde, controlled by Freeport McMoran Copper & Gold , said they will launch a 48-hour strike on Sept.7. Peru is the world's second biggest producer of copper.

Freeport's mine workers in Indonesia have also threatened to strike on September 15. The strike would be the second since July at Grasberg, the world's third-biggest copper mine.

The week ahead is filled with event risk, including rate decisions by the central banks of Canada, England, Australia and the ECB. At the end of the week there will be an economic release from China while US President Barack Obama will present a speech on jobs on Thursday.

Traders said that the US Labor Day holiday had drained volumes and robbed markets of direction.

FORECASTS DOWNGRADED

Copper fell 5.6 percent in August, dragging prices down close to 7 percent in the year to date.

Citi downgraded its price forecast for base metals as it also moderated forecasts for economic growth due to recent market turmoil.

The bank now sees copper prices averaging $9,099 a tonne this year from $9,696 forecast previously, although it still expects strong Chinese imports.

"Chinese imports will remain strong, as Chinese consumers take advantage of price dips to re-stock. China is unlikely to tighten monetary policy further. Strong Chinese demand should underpin copper at the $7,500 mark (and) the market is likely to be capped at the $9,500 mark," it said in a note

Among other industrial metals, a favourable price differential between Chinese and Western markets has encouraged stockpiling of nickel in bonded warehouses in China, a trader said.

Cancelled warrants for nickel , the metal earmarked for delivery, climbed to a four-year high at 8.6 percent of total stock. Nickel finished at $20,890 a tonne from a close of $21,500 on Friday.

Aluminium slipped to $2,387.50 a tonne from Friday's close of $2,436. Citi analysts said they see little downside to aluminium prices, as prices are now below the high-cost marginal producer. They expect aluminium prices to average at $2,462 a tonne this year from $2,701 a tonne previously.

Tin ended at $23,950 a tonne from Friday's close at $24,250. Zinc fell to a $2,172 close from $2,195, while lead was bid at $2,430-2,440 from $2,460.

Copyright Reuters, 2011