Copper retreats from one-week high on firmer dollar

LONDON Thu Oct 18, 2012 12:46pm EDT

LONDON (Reuters) - Copper gave up gains on Thursday to end flat as the dollar strengthened and the outlook for top metals consumer China improved after data indicated the country's economy is stabilizing.

Three-month copper on the London Metal Exchange closed unchanged at $8,220 a tonne after touching a one-week high of $8,260 during Asian trade.

The dollar rose against a basket of currencies .DXY after the Conference Board's leading index of U.S. economic activity posted its largest gain in seven months and data also showed factory activity in the U.S. mid-Atlantic region grew in October, snapping five months of contraction.

A strong dollar makes commodities priced in the U.S. unit more expensive for holders of other currencies. <FRX/>

Volumes, however, remained thin as LME Week - an annual gathering in London of the industrial metals industry - draws to a close.

Copper prices have been stuck in a range between $8,100 and $8,400 over the past several weeks as uncertainty about the outlook for demand for industrial metals keeps investors cautious.

"The most likely outcome to make a major move (to push prices out of its range) is on the euro side," said Ross Strachan, an economist at Capital Economics.

"We have had quite a bit of improved optimism lately surrounding the euro zone. But we don't think that is realistically going to be sustained. When that starts to unravel, we could well see metals prices move lower."

The focus will remain on the euro zone crisis. Germany and France clashed over greater European Union control of national budgets and moves towards a single banking supervisor before a summit of the bloc's leaders.

Copper got support from data showing that China, which accounts for about 40 percent of global demand for the metal, probably hit the bottom of a seven-quarter economic downturn in the July-to-September period.

The country should hit or beat the government's growth target this year, and a mild economic recovery is likely in the fourth quarter, its statistics bureau said.

DEMAND EYED

Beyond the short term, traders said there was still no significant pick-up in Chinese copper demand, with the Shanghai Futures Exchange front-to-forward-month curve switching to a slight contango on Thursday.

"Investors are pricing forward contracts higher as they feel copper's outlook for the rest of the year has improved, based on recent global economic data," said a trader based in Shanghai. "But we have not seen a meaningful pick-up in spot demand yet."

Most other LME metals held onto gains, with three-month LME aluminum ending the day 1.3 percent higher at $2,015 a tonne.

The aluminum market has seen large amounts of net fresh cancelled inventories in recent days - 104,500 tonnes reported on Thursday, nearly all from Detroit warehouses, after 63,725 tonnes the previous day from Antwerp.

"Although aluminum inventory remains high, this does simply mean that even less metal will be available to the market and queues to receive metal are likely to get long. Should this trend continue, premiums may find additional support rather than outright prices," said Standard Bank analyst Walter de Wet.

Tin also finished the day higher, with benchmark tin up 0.95 percent stronger at $21,775 a tonne.

Nickel closed 0.8 percent firmer at $17,320 a tonne, even though data from the International Nickel Study Group showed the global market was in supply surplus by 32,200 tonnes in the first eight months of 2012.

Zinc ended the day unchanged at $1,921, and battery metal lead was barely changed, up $2 at $2,157.

(Additional reporting by Carrie Ho in Shanghai; Editing by Anthony Barker and Jane Baird)

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