METALS-Copper falls after Fed announcement; fiscal worries drag

Thu Dec 13, 2012 12:26pm EST

* Barclays suggests shorting base metals if rally continues

* Copper, aluminium fundamentals weak

* U.S. data upbeat; Nov retails sales up, jobless claims fall

By Silvia Antonioli and Stephen Eisenhammer

LONDON, Dec 13 (Reuters) - Copper fell on Thursday as an impasse in U.S. budget talks showed little sign of being resolved and a Federal Reserve decision to tie its monetary policy to unemployment raised concerns that its economic stimulus might be limited.

Benchmark copper on the London Metal Exchange closed down 0.7 percent at $8,074 a tonne from a last bid of $8,130 at the close on Wednesday, when it edged up 0.3 percent.

Sharp differences remained between congressional Republicans and the White House in negotiations to avoid the "fiscal cliff" of steep tax hikes and budget cuts. A failure to strike a deal could send the world's largest economy back into recession, with negative implications for metals demand.

Some investors were also worried by the Fed's decision to link its monetary stimulus to unemployment and inflation numbers, which could limit the length of its intervention.

The Fed said it planned to buy $45 billion in longer-term Treasuries each month on top of its $40 billion monthly purchase of mortgage-backed securities as expected, but set unemployment and inflation thresholds for its exit strategy.

"The Fed has given some conditions, and this has scared the market a bit. But in my opinion, the losses in metals have more to do with uncertainty on the fiscal front than with disappointment on monetary easing," T-commodity consultant Gianclaudio Torlizzi said.

"After the gains in metal recently, some investors are also closing their positions and taking profit, worried that if a fiscal agreement is not found, higher taxes could hit capital gains, too."

Volume was thin with 12,800 lots of copper traded by the kerb close, 18 percent lower than the average volume over the past 30 days.

U.S. data on Thursday was upbeat, showing retail sales rose in November and jobless claims fell sharply last week, but metals markets largely shrugged off the news. [ID:nL1E8NCFE7}

Copper prices have risen more than 7 percent in the past month, and the metal is now up by more than 6 percent on the year.

Prospects for the euro zone got a boost as the European Union reached a landmark deal to make the European Central Bank the bloc's top banking supervisor.

The deal is a crucial step towards a European banking union. German Chancellor Angela Merkel said, "The importance of the deal cannot be assessed too highly."

In industry news, the CEO of Aurubis, Europe's biggest copper smelter, said he expected China to post economic growth and growing copper demand in 2013, despite recent reports of an economic slowdown in the world's largest metal importer.

WEAK FUNDAMENTALS

Barclays suggested shorting base metals should the rally seen in the last month continue, given that fundamentals remain weak especially for aluminium and copper.

"Aluminium fundamentals are the weakest for any base metal at present, but price volatility tends to be quite low. Instead, we recommend shorting copper if cash prices rise much above $8,500," it said in a research report.

"A large stock overhang in China means its import demand will likely be sharply down on year-ago levels, and following the recent abolition of export taxes on tolled copper, there could be a steady stream of exports early next year, which could turn market sentiment very negative."

Aluminium closed down 0.6 percent at $2,126 a tonne and battery material lead shed 0.8 percent to finish at $2,303.

Neither zinc or tin traded at the close. Zinc, used to galvanise steel, was bid at $2,073 a tonne, down 1.0 percent, and tin was bid at $22,975, down 0.7 percent from Wednesday.

Stainless steel material nickel closed unchanged at $17,700 a tonne.