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Copper drops further below 7,000 usd on slowdown fears

Monday, January 21, 2008

LONDON (Thomson Financial) - Copper fell further below the 7,000 usd mark as wider economic fears continued to weigh on investor sentiment.

With equity markets down across the board, with the exception of the US where markets are closed for Martin Luther King Day, fears of a slowing global economy are dominating. Copper has been underpinned by strong buying interest from China, the world's largest consumer of the red metal, but fears continue to mount that the Asian tiger will not be immune should the macro outlook worsen.

"Copper continues to be seen as one of the better benchmarks of global economic momentum and the wide disparity between equity performances and copper prices this year does not bode well for the red metal if and when Chinese trade buying begins to fade," said JP Morgan analyst Michael Jansen.

At 2.41 pm, LME copper for three-month delivery was down at 6,921 usd per tonne against 7,141 usd at the close on Friday.

Fears of a significant US slowdown have gained traction in the metal markets, with the knowledge that copper prices have fallen in each of the last three US recessions weighing heavily on investors' minds.

While the US is now only the world's second largest consumer of the red metal, and China is tipped to continue to grow at an impressive rate, many market watchers fear a slowing US economy will still act as a brake on the rest of the world.

But some analysts remain optimistic on the outlook for the red metal. Alex Heath at RBC Capital Markets said today that, "the momentum in the developing markets is unstoppable and though the Chinese government is taking numerous steps to control prices and inflation which may slow the machine, overall growth will continue.

"It is simply that the baton in the race is in the process of moving from West to East. It is this process that is proving so unpalatable to so many."

The International Copper Study Group today released figures showing global copper consumption increased by more than 7 pct in the first 10 months of 2007, driven by a 37 pct increase in Chinese usage.

Strength in the dollar today is also having a short-term influence on prices, with the US currency's bounce from recent lows making commodities priced in greenbacks more expensive for overseas buyers.

Falling copper inventories at LME monitored warehouses are helping prop up prices, with deliveries into China believed to be the main reason for the decline.

"China's physical market has tightened quite considerably due to consumer restocking ahead of Lunar New Year, maintenance shutdowns at domestic smelters, shipment delays out of Peru and Chile, and customs delays," said analysts at UBS.

Copper inventories fell today by 2,325 tonnes to stand at 180,900 tonnes, the lowest level since November. Stockpiles of the red metal have fallen by over 20,000 tonnes since Jan 7, though these falls have largely been priced into the market, analysts said.

Among other metals, three-month nickel fell to 28,000 usd per tonne from 28,775 usd, while tin was at 16,350 usd against 16,450 usd.

Aluminium eased to 2,424 usd per tonne, basis three months, against 2,450 usd per tonne, while zinc was down at 2,275 usd against 2,355 usd. Lead tracked the complex lower, down at 2,540 usd against 2,590 usd.

Posted by MOHAMED SAID at 7:49 AM  

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