METALS-Copper rises after 3-day fall, China demand supports

Wed Sep 25, 2013 12:16pm EDT

* China copper bonded premiums steady at $170-$200-Shmet

* Possible U.S. government shutdown, lack of Fed clarity weigh

* Japanese smelters propose 45 pct rise in term premiums

By Maytaal Angel and Eric Onstad

LONDON, Sept 25 (Reuters) - Copper edged up on Wednesday as solid demand from China helped stem three consecutive days of falls, though uncertainty about the U.S. fiscal outlook and its monetary policy kept gains in check.

A United States Senate vote is due later on Wednesday on a motion that would allow the government to keep running beyond the end of the month when budgets are due to expire, though lawmakers have yet to find common ground.

Investors, wrong-footed by last week's shock Federal Reserve decision not to begin trimming its bond-buying stimulus, are cautious on riskier assets like copper.

Yet physical demand for copper in top consumer China remains healthy, with premiums for metal in bonded zones holding in a $170-$200 range, according to China-based price provider Shmet. ()

China consumes about 40 percent of the world's copper.

"Destocking in China has ended and the economy is picking up, there's no doubt about that at all," said Nic Brown, head of commodities research at Natixis.

"We are still in a market that's in deficit. In 2014 there's more supply coming on stream so eventually there will be downward pressure on copper, but before that there's every prospect the market gets squeezed aggressively."

Benchmark three-month copper on the London Metal Exchange failed to trade in closing open outcry activity, but was last bid at $7,195 a tonne, up 0.66 percent.

The move broke three days of falls that eroded gains made following last week's shock Fed decision not to taper stimulus.

Copper prices have been held back in recent weeks by U.S. fiscal and monetary policy uncertainty, and also by long standing worries that the market is well supplied and moving into surplus.

OVERSUPPLY WORRIES

Those worries about oversupply, however, receded on Wednesday after Japanese copper smelters proposed a 45 percent rise in the term premiums they want to charge Chinese end-users next year, reflecting expectations of rising demand and tight supplies.

Also, Aurubis, Europe's biggest copper smelter, said on Wednesday it will offer 2014 copper term premiums for its European customers at $105 per tonne - an increase of $19 per tonne from last year.

Premiums are paid above the LME spot price to cover physical delivery costs, but they also vary according to supply and demand dynamics, rising when market balances are tight.

Looking into next year and beyond however, copper market supplies are still expected to expand significantly.

BHP Billiton , the world's biggest mining company, said on Wednesday global commodities markets were being undermined by rising supplies of raw materials, but added that market conditions for copper over time should be influenced more by resource decline.

It also said it expected overcapacity in the aluminium and nickel industries to persist.

LME aluminium closed 0.46 percent higher at $1,804 a tonne, zinc climbed 0.53 percent to end at $1,886 a tonne, while lead gained 0.58 percent to $2,076 a tonne.

Russia's United Company Rusal, the world's biggest aluminium producer, asked the London Metal Exchange (LME) to postpone a proposed overhaul of warehouse rules that it believes threatens to further distort the aluminium market.

Tin was the best performer, jumping 1.2 percent to end the day at $23,175 a tonne, while nickel added 0.55 percent to $13,825 a tonne.

Nickel, which has been burdened by overproduction and market surpluses, has been the worst performing base metal on the LME, falling nearly 20 percent so far this year.

Analyst Walter de Wet at Standard Bank said nickel was looking weak again.

"Open interest which has been declining fast over the past week would indicate that short covering has taken place in the run-up to the Fed FOMC meeting last week. If most of the weak shorts have covered already, the metal may look to test the support at $13,700 soon," he said in a note.

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