Copper dips on worry China economy overheating

LONDON Thu Apr 15, 2010 6:37am EDT

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LONDON (Reuters) - Copper dipped on Thursday weighed by a stronger dollar and concerns China might move to tighten monetary policy to head off possible overheating in its economy after robust growth data. Benchmark copper for three-months delivery on the London Metal Exchange traded at $7,880.75 a metric ton at 4:50 a.m. EDT from a close of $7,950 on Wednesday.

China's economic growth accelerated in the first quarter to 11.9 percent, data released earlier showed, the fastest annual pace in nearly three years. The figure was flattered by a low base of comparison a year earlier.

Although the country's consumer price inflation in March was 2.4 percent year-on-year, decelerating from February's 2.7 percent, the data still prompted fears over tighter monetary policies, weighing on China's main stock index.

It also prompted speculation that China may be preparing to slightly loosen its grip on the yuan, even though the Commerce Ministry promptly reaffirmed its opposition to a stronger yuan.

"China data was very bullish. The market is reading into it that they're going to have to let the currency float. No one is certain what the outcome of that will be so people are afraid," said Randy North, trader at RBC Capital Markets.

He added that worries over tighter monetary policy in China make sense. "Clearly 12 percent growth when the target is 8 percent is a bit frightening."

If China raises the value of the yuan against the dollar, it would make dollar-priced commodity imports less expensive for the world's biggest raw materials consumer, but it would also make Chinese exports more expensive.

"I don't think it will impact heavily demand from China for imports. In contrast, because China is an exporter, the stronger yuan will make Chinese goods less available for export and will impact economic growth more negatively," said Commerzbank analyst Eugen Weinberg.

PERSISTENT

The dollar was stronger versus the euro as persistent concerns over Greece's debt problems weighed on the single currency. A stronger dollar makes dollar-priced metals more expensive for non-U.S. investors.

LME copper stocks, seen as a signal of demand trends, rose 775 metric tons to total 510,425 metric tons, having fallen continuously since the beginning of March. Total stocks remain 8 percent below a February high of 555,025 metric tons.

Among other industrial metals, soldering metal tin was at $18,800 from $18,845, having earlier hit its highest since September 2008 at $18,991.

LME stocks fell 95 metric tons to 24,135 metric tons while canceled warrants - material set to leave warehouses - rose 2,405 metric tons to total 2,835 metric tons. The move could indicate an uptick in demand for tin as the electrical solder industry improves.

Stainless steel making ingredient nickel was at $26,575 from $26,400, having earlier hit its highest since May 2008 at $26,712.

Nickel, the strongest performer on the LME this year, continues to benefit from supply tightness and a recovery in the stainless steel industry, which accounts for about two thirds of nickel demand.

Nickel stocks at LME warehouses fell 1,428 metric tons to 151,878 metric tons, their lowest since late December 2009 and down 9 percent since a record high of 166,476 metric tons in early February.

Aluminum was at $2,449.50 from $2,461, zinc was at $2,422 from $2,460, while battery material lead was at $2,314 from $2,360.

Investors are also keeping close tabs on LME data, which showed a dominant position controlling between 50-80 percent of cash warrants for nickel, tin and lead.

(Reporting by Maytaal Angel; Editing by Keiron Henderson)

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