Copper recovered on Friday, as buying picked up a day after prices hit their lowest in 1-1/2 months, but the metal still fell for a third straight week due to concerns over demand and a probe into metals financing in China. Three-month LME copper closed up 0.53 percent at $6,655 a tonne after falling to its lowest since May 1 in the previous session. It ended down 0.4 percent for the week.
The metal, used in power and construction, has fallen close to 10 percent so far this year. News this week that authorities are investigating the use of cargoes of metal as collateral in financing deals in China has raised fears about trade in the metal. Concerns over fraudulent financing at some depots in Qingdao port has prompted some banks and merchants to cut credit for financing deals or relocate metal to better-known warehousing firms, including those that are part of the LME's vast system.
"We do expect to see an outflow (into LME warehouses). The question is whether it will be a disorderly dumping of stocks or whether financing deals will just be gradually unwound," Caroline Bain, senior commodities economist at Capital Economics, told the Reuters Global Base Metals Forum. "Our forecasts assume that the unwinding of the deals will put pressure on copper prices in Q3. We have (a forecast of) $5,800 for end-Q3 copper."
The trail that led investigators to a suspected metal financing scam at Qingdao which has spooked Western banks began with a Communist Party corruption probe 1,000 miles away in the old Silk Road city of Xining. Traders also locked in profits ahead of the financial year end, said analyst Tim Radford of Sydney-based advisor Rivkin. "We took profits today and we're pretty happy to be out, but given the strong support we have seen at current levels on copper, buyers may enter as the second half gets underway."
Investors are likely to monitor economic data from China closely to gauge the health of the world's top copper consumer as the economy has had a soft start to the year. The Chinese economy showed some signs of stabilising in May as the government unveiled more stimulus measures, but signs of further deterioration in the property market indicate more policy support may be needed.
Benchmark nickel ended at $18,070 a tonne, up 0.4 percent, having fallen to a two-month low in the previous session. Nickel prices have shed 4.2 percent this week. Nickel, up 30 percent so far in 2014, has been by far the best performing base metal after top producer Indonesia imposed a ban on shipments of unprocessed ore in January. It hit a 27-month peak of $21,625 a tonne on May 13, but then prices have since slipped with some investors believing the rally may have been overdone.
Chief executives of Freeport McMoRan Copper & Gold Inc and Newmont Mining Corp are in Indonesia's capital, marking what might be a last-ditch effort to resolve a dispute over a mineral export tax before a new administration takes over in October. A stoppage of copper concentrate exports from the country has put the brakes on a mine surplus expected to cap prices of copper the year. Aluminium closed unchanged at $1,845 a tonne, zinc finished 0.6 percent firmer at $2,088, lead gained 0.5 percent to end at $2,085.50 and tin edged up 0.1 percent to $22,605.
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