Copper crumbles

Copper fell to its lowest since December last year on Wednesday after data from China suggested a cooling economy and potentially less demand from the world's largest consumer, but analysts say growth is still strong. A generally firmer dollar across a basket of currencies also kept up pressure on the metal.
Benchmark copper on the London Metal Exchange closed at $8,700 a tonne from $8,910 at the close on Tuesday. It touched a session low of $8,643, its lowest since early December. China's industrial output in April rose 13.4 percent from a year earlier, compared with an average forecast of 14.7 percent and easing from a pace of 14.8 percent in March. "The government is doing everything it can to slow the economy, but it is still growing strongly," said Max Layton, analyst at Macquarie.
China's inflation eased in April to 5.3 percent, slightly above the consensus, but below a 32-month high in March of 5.4 percent, reinforcing expectations that pressures were peaking and would start to ease in the second half of 2011. "Translating these numbers ... the net effect would imply that the authorities seem to have things under control and that they may hold off another round of tightening for now," RBC Capital Markets said in a note.
That was echoed in a Reuters interview with a government economist, who said China may cut rather than raise interest rates over the rest of this year. In another sign of a cooling economy, China's refined copper production fell in April from March's record 470,000 tonnes, although primary aluminium production rose.
"The metals production data is showing a picture of a well-supplied market," Credit Agricole analyst Robin Bhar said. China's absence from the copper market is reflected in inventory data. Stocks of copper in LME warehouses at 468,350 tonnes are at their highest since June and up nearly 35 percent since December 9.
China is the world's largest consumer of copper, expected to account for about 40 percent of global consumption estimated at around 21 million tonnes this year. An investor retreat from industrial metal markets last week was partly triggered by weaker-than-expected surveys of manufacturing in China and the United States, the world's largest economy and second-largest copper consumer.
A firm dollar also kept pressure on metals. The euro extended losses against the US currency as investors' appetite for risk diminished. A strong dollar makes metals more expensive for holders of other currencies. Bhar sees copper weakening further, after it breached its 200 moving day average at around $8,758.
"If the close confirms that level has breached then I think we're going to get further momentum, technical selling off the back of that, and therefore the low $8,000 level will be the next sort of target," he said. Three-month aluminium closed at $2,611 a tonne from $2,652 at Tuesday's close. Zinc closed at $2,160 from $2,173, lead was $2,295 from $2,335, tin was untraded, but bid at $29,100 from $29,600 and nickel was $24,550 from $24,850 a tonne.