METALS-Copper buckles under dollar strength, China worries

Fri Mar 19, 2010 3:24pm EDT

* Concerns about Chinese demand weigh

* LME copper stocks down nearly 30,000 T since March 1

* Nickel stocks at lowest since late December

(Adds New York closing copper price, graph; adds NEW YORK dateline/byline and analyst comments)

By Marcy Nicholson and Pratima Desai

NEW YORK/LONDON, March 19 (Reuters) - Copper came under pressure on Friday as the dollar rose and investors worried about demand from China, the world's largest consumer of industrial metals.

Copper for May delivery HGK0 on the New York Mercantile Exchange's COMEX division reversed down 2.30 cents to close at $3.3725 per lb, moving from $3.3640 to $3.4110.

Benchmark copper CMCU3 on the London Metal Exchange ended at $7,435 a tonne from $7,486 at the close on Thursday. The metal used in power and construction is up about 20 percent since early February.

The euro fell and was headed for its worst week since January as traders fretted whether Greece will secure euro-zone aid to tackle its debt crisis, while worries about Britain's economy hit sterling. [USD/]

A major risk for industrial metals is the extent and timing of fiscal tightening in China, which is said to account for more than 30 percent of global copper demand -- estimated this year at above 18 million tonnes.

For the next leg up, we do need concerns about China to be alleviated," said Max Layton, analyst at Macquarie.

"For people taking a longer term view there will be opportunities to start accumulating on any dips triggered by macroeconomic weakness."

"Copper is developing a very clearly defined line of overhead resistance, comes in right around the $3.4250 area," said Sterling Smith, analyst for brokers Country Hedging Inc in Minnesota, referring to the May contract trading on NYMEX.

"With the strong dollar today, copper did find a little bit of selling pressure."

Analysts say the copper market is looking at signs of stronger economic growth in the United States, the world's largest economy, and translating that into increased demand for industrial metals.

"There is more confidence that the economy is going to recover, so demand will outweigh supply," said Eugen Weinberg, commodities analyst at Commerzbank.

STAINLESS IMPROVEMENT

Stocks of copper in London Metal Exchange warehouses also helped boost the metal. They have fallen about 30,000 tonnes since March 1 to 522,975 -- the lowest since the middle of January.

"We continue to expect the market to retest all-time highs at some stage this year," VTB Capital said in a note.

Three-month nickel CMNI3 hit $22,900 a tonne, the highest since March 4. It ended at $22,450 a tonne compared with $22,760 at the close on Thursday.

Stocks of nickel in LME warehouses are down 8,724 tonnes since early February to 157,752 tonnes, a level last seen at the end of last year. Stainless steel mills account for about two-thirds of global nickel demand.

"This shift in inventory dynamic was a clear signal that the nickel market was in deficit," Barclays Capital said in a note. "Decline in stocks has been accompanied by reports of improving production levels in the global stainless steel sector."

Consultants Brook Hunt told Reuters in an interview on Thursday that the nickel market this year could see a 10,000 tonne deficit. The nickel market this year is estimated at around 1.4 million tonnes. [ID:ID:nLDE62H12Q]

Industry consultants CRU Group expects the nickel market to see a deficit for the first time in four years. [ID:nLDE62H1BU]

Steel material zinc CMZN3 ended at $2,295 a tonne from $2,333, battery material lead CMPB3 at $2,200 a tonne $2,245 and aluminium CMAL3 at $2,258 a tonne from $2,276.

Tin CMSN3 closed at $17,650 a tonne from Thursday's last bid at $17,790.

For stories on nickel click on [ID:nSGE62I0A1]

For story on Boliden's Finnish copper smelter click on [ID:nLDE62I13J]

Metal Prices at 1907 GMT Metal Last Change Pct Move End 2009 Ytd Pct

move COMEX Cu 336.45 -2.30 -0.68 334.65 0.54 LME Alum 2260.00 -16.00 -0.70 2230.00 1.35 LME Cu 7440.00 -46.00 -0.61 7375.00 0.88 LME Lead 2205.00 -40.00 -1.78 2432.00 -9.33 LME Nickel 22530.00 -230.00 -1.01 18525.00 21.62 LME Tin 17575.00 -175.00 -0.99 16950.00 3.69 LME Zinc 2275.00 -58.00 -2.49 2560.00 -11.13 SHFE Alu 16850.00 175.00 +1.05 17160.00 -1.81 SHFE Cu* 60230.00 690.00 +1.16 59900.00 0.55 SHFE Zin 18965.00 250.00 +1.34 21195.00 -10.52 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Editing by Anthony Barker/Marguerita Choy)