CANADIAN MINING NEWS

 

 

 
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UPDATE 5-Copper falls on firm dollar, Chinese absent

Thu May 8, 2008 4:04pm EDT

(Updates with New York prices, adds trader comment)

By Anna Stablum

LONDON, May 8 (Reuters) - Copper prices fell to a one-week low on Thursday as Chinese buyers were sidelined expecting lower prices and a firm dollar weighed on sentiment.

Analysts said supply disruption risks and low inventory levels supported prices, but the metal lacked fresh impetus to climb higher as China still shied away from the market.

Copper for delivery in three months MCU3 fell as low as $8,260 per tonne, its lowest since May 2 and closed at $8,300, down $130 from Wednesday, when it shed 1.1 percent.

In New York, copper for July delivery HGN8 finished with a 4.65-cent loss at $3.7875 a lb on the COMEX metals division of the New York Mercantile Exchange. July futures fell to their lowest level in a week at $3.7530 per lb.

Traders in New York said declines resulted when players continued to unload long positions taken out during Monday's price spike, along with the absense of buyers and an increase in LME warehouse stocks.

"We haven't really seen any significant news...In a situation like that you see forex has a bit of an influence in the near term," said analyst Sudakshina Unnikrishnan at Barclays Capital said.

The dollar hit a two-month high against the euro and a basket of currencies, but then trimmed some of its losses as the euro recovered after the European Central Bank left interest rates unchanged. Its president focused more on inflation.

A stronger dollar makes industrial metals more expensive for holders of other currencies.

We just don't see any reason for copper to rally from here. A lot of the negative news has been factored in so unless you get a further big supply disruption we see it drifting," analyst Max Layton at Macquarie Bank told Reuters.

A strike at the world's top copper producer Codelco has just ended and production is expected to resume on Friday, but another strike could start in Peru.

Unions at mines throughout Peru are ready to strike next week to demand better labor benefits, the head of the country's biggest federation of mining unions and local union bosses said. [ID:nN06491860]

HOLDING BACK

In terms of underlying demand, analysts say China's robust appetite remains intact.

"They are just holding back as much as possible from purchasing in order to get the price down," Layton said, adding that Chinese demand would pick up at around $7,500 to $7,800.

So far this year copper has gained 26 percent on supply disruptions and tight inventory levels. Stocks in LME warehouses stand at 110,100 tonnes, down 44 percent this year.

Inventories could fall further, sparking a rally in copper with prices targeting $10,000 per tonne, analyst Allan Trench at metals consultancy CRU said.

"The key thing is that copper stocks would have to fall another 40,000 to 50,000 tonnes from where they are now -- that would be the real trigger," he said, adding it was likely as the market was structurally in deficit.

He compared the market to that of nickel, mainly used in stainless steel, where prices hit a high of $51,800 a year ago.

"Looking back to how the nickel market looked before that happened it looks very much like the copper market now," he said, referring to lukewarm signals from the physical market, demand growth slowing slightly and many consumers covered.

Since nickel MNI3 peaked last year, prices have nearly halved to trade at $27,700, down $800 from Wednesday.

Substitution from nickel pig iron killed the nickel rally, but copper had no equivalent, CRU's Trench said.

In other metals, tin MSN3 bucked the falling trend and was up at $24,500, after matching its record high of $24,600 set on April 24.

Energy-intensive aluminium MAL3 fell $49 to $2,875 a tonne on record high oil prices, zinc MZN3 shed $32 to $2,218, while lead MPB3 was $100 down at $2,320. (Additional reporting by Carole Vaporean in New York and Humeyra Pamuk in London; editing by Peter Blackburn)

 

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