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Copper off day highs as demand worries return
Monday, February 11, 2008
LONDON (Thomson Financial) - Copper came off day highs as worries that global economic weakness could crimp demand returned amid sustained falls in global equities. The metal remained up on the day overall, however, still underpinned by LME stock falls.
At 3.12 pm, LME copper for 3 month delivery was up at 7,785 usd a tonne against 7,700 usd at the close Friday.
Earlier the metal touched 7,860 usd, its highest since late October, amid news LME stocks have fallen by another 2,625 tonnes to total 126,300 tonnes. Overall, stocks remain at their lowest since early November, prompting strength in copper.
Offsetting this, however, are worries over the demand outlook.
Finance ministers from major world economies said at this weekend's G7 meeting the impact of the US sub-prime housing crisis may be broader than previously expected.
They estimated write-downs linked to the crisis could reach up to 400 bln usd globally, compared with 120 bln usd reported so far. Global equities have taken a hit as a result.
"We would be surprised if higher (metals) prices can be sustained in the current negative macro environment and especially as there looks to be more scope for demand surprises to the downside," said an analyst at UBS Investment Bank.
They added, however, that they would not take short positions or bets on prices falls either, amid ongoing supply-side problems, notably the lack of power in South Africa and China.
Severe weather in the two countries has damaged the power infrastructure in recent weeks, cutting output at mines and smelters.
Analysts at Fairfax said markets are concerned that when Chinese players return from the Lunar New Year holiday later this week, they will be confronted with supply shortages in copper.
As such the metal should remain well bid this week.
Longer term, however, there is little chance copper demand will remain robust in the face of an ongoing US economic growth slowdown and a possible recession that threatens economies across the world.
"Given the overall poor economic outlook, we would view this rally as an opportunity to put on longer-term strategies to protect against lower prices down the road," said BaseMetals.com analyst William Adams.
He added, however, that he would not try to anticipate a top in metals just yet, especially not in copper, which is at present up 7.5 pct since Wednesday's close.
Elsewhere, lead was up at 2,995 usd a tonne against 2,970 usd at the close Friday, when it clocked up gains of 7.6 pct. Earlier, the metal touched a 2.5 month high of 3,055 usd a tonne.
"Lead market conditions remain very tight, meaning that the lead price can be volatile and squeezed higher," said Commonwealth Bank of Australia analyst David Moore.
Other metals were down, however, on fears over the demand outlook in the face of worsening global economic conditions.
Nickel was down at 27,850 usd a tonne against 28,300 usd, zinc fell to 2,420 usd against 2,450 usd, tin dropped to 16,950 usd a tonne from 17,200 usd, while aluminium edged down to 2,687 usd from 2,695 usd
