Copper falls on growth fears

Benchmark copper fell to $8,800 a tonne by 1418 GMT, down from $8,970 a tonne at the close on Wednesday. The metal used in power and construction earlier on Thursday hit a session low of $8,757 a tonne.

Sentiment was hit by data from the United States, the world's largest economy, showing new claims for unemployment benefits rose more than expected last week, while other figures showed factory activity in the US Mid-Atlantic region fell to the lowest level since March 2009.

Caution in financial markets helped push the dollar higher against a basket of currencies, making commodities priced in the US unit more expensive for holders of other currencies.

"There is a gradual deceleration in growth and that is going to keep the market on the defensive into the balance of the year," said Edward Meir, analyst at MF Global.

"I suspect in the weeks ahead more and more attention will be paid to macroeconomic numbers as opposed to the dollar."

Debt crises in the euro zone and the United States have in recent weeks hit the copper price, which is down more than 10 percent since Aug. 1, when it touched $9,905 a tonne, the highest since April.

Highlighting growing concerns about the outlook for the global economy, Morgan Stanley slashed its global growth forecast for 2011 and 2012, saying the US and the euro zone were "dangerously close to a recession".

Moves by China to tighten monetary policy in a bid to rein in stubbornly high inflation have meant curbs on economic activity and fears of slower demand growth for industrial metals.

China accounts for nearly 40 percent of global copper demand, estimated at around 19 million tonnes this year.

Even the stronger yuan may not boost China's commodity imports, while markets such as the United States and Europe face economic uncertainty.

"The jury is still out on Chinese demand," a LME trader said

Stocks of copper in LME-registered warehouses fell 1,650 tonnes to 462,975 tonnes, while those for aluminium rose 6,825 tonnes to above 4.56 million tonnes.

However, about 70 percent of those aluminium stocks are tied up in financing deals. A typical deal consists of banks buying nearby aluminium from a producer, selling it forward at a profit and striking a warehouse deal to store it cheaply for an extended time period.

Analysts say these deals are unlikely to be unwound soon given the limited money-making opportunities available to banks facing historically low interest rates.

Also helping to support aluminium, used in transport, power and packaging, is strong demand in China, which again accounts for nearly 40 percent of global consumption, estimated this year at above 40 million tonnes.

Healthy Chinese consumption can be seen in stocks of aluminium monitored by the Shanghai Futures Exchange, which at around 150,000 tonnes are about half the level seen in early June.

"Local warehouses (in China) have seen a significant inventory drawdown so far this year as vertically integrated producers absorbed a significant portion of domestic output," Credit Suisse said in a note.

Copyright Reuters, 2011