Markets

LME copper slips for 2nd day, economic woes weigh

SINGAPORE : London copper edged lower for a second day on Thursday as worries over a floundering euro zone economy and

Published February 23, 2012 Updated February 23, 2012 04:58am

3 min

By Shoaib Ur Rehman

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Copper's weakness was echoed in other commodities and financial markets, with Asian equities and the euro slipping as global economic concerns including rising oil prices cut into a rally earlier in the week after euro zone finance ministers signed off on Greece's rescue package.

"The market got very excited about the Greece bailout and then we started to see a reassessment of Greece, reassessment of Europe and a general reassesment of risk," said Nick Trevethan, senior commodities strategist at Australia and New Zealand Bank.

"The market repriced risk in the last few days and has become less risk friendly."

Three-month copper on the London Metal Exchange eased 0.2 percent to $8,416 a tonne by 0240 GMT, extending marginal losses on Wednesday. Volume traded on LME Select was a paltry 891 lots.

Zinc was outpacing trades in copper, with volume at above 1,200 lots. It dropped 0.8 percent to $2,051.25.

Fresh evidence that the euro zone could slip into recession along with a continued contraction in China's manufacturing sector would make it hard for economy-sensitive copper to sustain or even keep its near 11 percent gain year to date.

Surveys of purchasing managers showed unexpectedly weak activity in the euro zone's most powerful economy, Germany, and in France. A preliminary purchasing managers' survey in China showed export orders falling the most in eight months.

Credit Suisse said considering that Wednesday's data, particularly the weaker manufacturing figure out of Germany, did not fuel a sell-off, it suggests underlying strength in industrial metals.

"However, if the German Ifo index would confirm yesterday's softer PMI readings, the price rally could pause for longer," Credit Suisse said in a note, referring to German data due out later in the day.

The most-traded May copper contract on the Shanghai Futures Exchange slipped 0.2 percent to 60,350 yuan ($9,600) a tonne.

STRONG POTENTIAL FOR ALUMINIUM

Countering poor data in Europe and China, US home resales rose to a 1-1/2-year high in January, pushing the supply of properties on the market to the lowest level in almost seven years in a hopeful sign for the housing sector.

Expectations of a global copper production deficit are supporting prices but it is unclear when demand will rise, said Germany's Aurubis, Europe's biggest copper producer.

Compared to copper, there may be more upside potential for aluminium which has gained more than $100 in less than a week and despite Thursday's drop is still not too far off its 200-moving day average of $2,311.68.

LME aluminium was off 0.3 percent at $2,273.25.

"If it broke through its 200-moving day average, it would potentially be quite a strong signal," said ANZ's Trevethan.

"Near-term prospects look quite decent for aluminium. There's reasonable demand from the aerospace sector, and from the auto sector in North America at least and higher energy prices are also supporting the market."

Aluminium stockpiles at LME warehouses staying at record highs above 5 million tonnes as well as excess smelting capacity had pressured prices late in 2011 even as bulk of the LME stocks are believed to be tied to financing deals.

"If you view the stocks as available to the market then it's a dreadful story. But if you think that a lot of that stock is tied and not really available it's a very diffrent story in the near term given the production cuts going on globally," said Trevethan.

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