METALS-Copper drops as IMF report strengthens growth fears

Wed Apr 17, 2013 12:29pm EDT

* Analysts say copper could fall further in short term
    * Escondida copper mine on track for 20 pct output rise
    * Rio Tinto's Kennecott Utah Copper declares force majeure

    By Silvia Antonioli
    LONDON, April 17 (Reuters) - Copper fell more than 3 percent on Wednesday
after the International Monetary Fund downgraded its global economic growth
projections for this year and next, increasing worries about the prospects for
metals demand.
    In addition, European car sales, a major source of demand, fell 10.3 percent
in March as an unrelenting market contraction spreads to the region's more
prosperous north. 
    Benchmark copper on the London Metal Exchange closed down 2.8
percent at $7,080 from $7,285 on Tuesday, more than offsetting gains in that
session of 1.2 percent. It earlier fell more than 3 percent to $7,039 a tonne.
    The metal used in power and construction has lost more than 8 percent this
year.
    The IMF trimmed projections for global economic growth to take into account
sharp U.S. government spending cuts and the latest struggles of
recession-stricken Europe. 
    "The weakness in base metals today is an extension of what we have seen in
past few days, and it is down to slow growth in China and the U.S.," Standard
Chartered analyst Daniel Smith said. "There is a bit of a lack of confidence in
the outlook, also reinforced by the IMF report."
    Data showing lower-than-expected economic growth in China in the first
quarter had already led to a sharp drop in copper on Monday. 
    Moody's Investors Service on Tuesday cut to stable from positive its outlook
for China, the second pessimistic revision by a foreign ratings agency this
month.
    China makes up for about 40 percent of the global copper consumption.
    Data on Tuesday showed U.S. consumer prices fell in March for the first time
in four months and factory output slipped, strengthening the argument for the
Federal Reserve to maintain its monetary stimulus to speed up growth.
 
    "The market remains nervous and likely to react quickly to any further
negative macro data or news," brokerage Sucden said in a research note.
    A stronger U.S. dollar against a basket of other units also weighed on
metals, making the dollar-priced commodity more expensive for holders of other
currencies. 
    On the supply side, production of copper concentrate at the world's biggest
copper mine, the BHP majority-owned Escondida mine in Chile, rose 61 percent in
the nine months to March 31 and was on track to increase by at least 20 percent
in 2012/13. 
    By contrast, Rio Tinto's Kennecott Utah Copper expects to lose about 100,000
tonnes of refined copper production after a landslide at its Bingham Canyon
copper mine, the second-largest in the United States. The company is invoking
force majeure with respect to copper cathode and sulphuric acid contracts as a
consequence of the incident. 
    Brokers SP Angel said in a note: "100,000 tonnes (represents) 0.5 percent of
the copper market. While this does not sound like much, when compared with our
forecast market surplus of just 15,000 tonnes for the year, the failure should
be more than sufficient to turn the market to deficit and to help prices
recover."
        
    GLENCORE
    China's antitrust authorities on Tuesday removed the last obstacle to
Glencore's $30 billion takeover of miner Xstrata after the commodities
trader agreed to sell a $5.2 billion mining project to ease its grip on copper.
 
    Glencore had also agreed to scrap a European zinc sales pact with producer
Nyrstar as a concession to European regulators but will keep the rights
to zinc sales elsewhere.
    More than 10 firms have already approached Nyrstar, hoping to secure the
exclusive rights to its European zinc sales, worth an estimated $700 million a
year, sources said last month. 
    "We will look at all the options that we have in-house and not in-house to
find a substitute (to Glencore)," Nyrstar CEO Roland Junck told the FT Global
Commodities conference in Lausanne, adding that a new contract will not
necessarily be a copy of its previous agreement with Glencore.
    Zinc, used in galvanizing, closed at $1,877 from $1,896 a tonne at
Tuesday's close.
    Tin ended at $20,400 a tonne from $21,120, battery material lead
 closed at $2,022 from $2,065 and aluminium, untraded at the
close, was bid at $1,895 from $1,914.
    Stainless steel material nickel closed at $15,425 from $15,705. 
    The global nickel market was in surplus by 21,500 tonnes in the first two
months of the year, the latest monthly bulletin from the International Nickel
Study Group showed. 
    
 Metal Prices at 1602 GMT
 Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T
  Metal            Last      Change  Pct Move   End 2012   Ytd Pct
                                                              move
  COMEX Cu       319.85      -10.70     -3.24     365.25    -12.43
  LME Alum      1902.25      -11.75     -0.61    2073.00     -8.24
  LME Cu        7077.25     -207.75     -2.85    7931.00    -10.76
  LME Lead      2018.50      -46.50     -2.25    2330.00    -13.37
  LME Nickel   15425.00     -280.00     -1.78   17060.00     -9.58
  LME Tin      20500.00     -620.00     -2.94   23400.00    -12.39
  LME Zinc      1874.00      -22.00     -1.16    2080.00     -9.90
  SHFE Alu     14575.00       30.00     +0.21   15435.00     -5.57
  SHFE Cu*     52440.00     -180.00     -0.34   57690.00     -9.10
  SHFE Zin     14570.00       70.00     +0.48   15625.00     -6.75
 ** Benchmark month for COMEX copper
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