METALS-Copper falls as potential Syria strike spurs caution

Wed Aug 28, 2013 12:26pm EDT

* Tensions put pressure on equities, fuel dollar rebound

* China economy shows signs of stabilising, demand still slow

* Copper price still down more than 8 pct so far this year

By Silvia Antonioli

LONDON, Aug 28 (Reuters) - Copper fell on Wednesday as the dollar rose and as nervousness over a potential U.S.-led military strike against Syria made investors more adverse to risk, while concerns over excessive copper supply in China also weighed.

The United States and its allies geared up for a probable military strike against Syria that could come within days.

The prospect of Western military action pushed Brent crude oil to six-month highs and gold to its highest since May, but knocked equities as investors shied away from assets seen as riskier, including metals.

The tensions also fuelled a rebound in the dollar as investors sought the greenback's safety. A stronger dollar makes metals priced in that currency more expensive for holders of other currencies, putting pressure on copper.

Three-month copper on the London Metal Exchange closed at $7,290 a tonne, after peaking at $7,352.50 earlier in the session, from $7,315 at the close on Tuesday.

"I think in the next few days we are going to see some action in the Middle East and copper is likely to come off on the back of that while gold and oil are likely to go higher but we don't expect it to be that long lasting," Standard Chartered analyst Daniel Smith said.

"But even Middle East aside, copper doesn't feel that bullish to me. Overall we are relatively optimistic on the demand side but also supply is doing quite well which is the main concern for people. And demand in China is good but not that good. I think it is still early days to get too optimistic about China."

China, which accounts for about 40 percent of copper consumption, is showing signs of stabilising, helped by policy support and some improvement in global demand, the state statistics bureau said on Monday.

TOO MUCH SUPPLY

A brightening economic picture globally has fuelled a rebound in copper prices of more than 10 percent in the past two months, but most of the good news is now priced in, said Sydney-based analyst Matthew Fusarelli at AME Group.

"In China, fabricators are running down their supply chains, there is more mine supply coming online...we don't see anything that is going to add to demand so it's pretty hard to see a sustained uplift in prices," he added.

Copper prices are still down more than 8 percent for the year.

In industry news, Indonesia has proposed several amendments to a controversial 2014 ban on unprocessed mineral exports, the industry minister said, as it scrambles to boost the rupiah and restore confidence in Southeast Asia's largest economy.

Tin closed at $21,650 from $21,825 at the close on Tuesday and nickel at $14,175 from $14,425.

Aluminium closed at $1,864.50 a tonne from $1,887 at the close on Tuesday, zinc at $1,958 from $1,983 and lead at $2,213 from $2,224 a tonne.

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